TIDMAEFS
RNS Number : 9103R
Alcentra European Fltng Rate Inc Fd
03 July 2020
ALCENTRA EUROPEAN FLOATING RATE INCOME FUND LIMITED
3 JULY 2020
FOR IMMEDIATE RELEASE
THE BOARD OF DIRECTORS OF ALCENTRA EUROPEAN FLOATING RATE INCOME
FUND LIMITED ANNOUNCES THE ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS FOR THE YEARED 31 MARCH 2020.
Strategic Report
Financial Highlights and Performance Summary
Financial Highlights
The NAV total return since inception achieved by Alcentra
European Floating Rate Income Fund Limited (the "Company") was
24.90%(3) , an annualised return of 2.79%(3) . The NAV total return
details the change in NAV from the start of the relevant period and
assumes that dividends paid to shareholders are reinvested at
NAV.
The Company repurchased 26,776,226 Ordinary Shares during the
year for a total cost of EUR31,176,890 (GBP26,922,176) (Year ended
31 March 2019: 28,195,844 Ordinary Shares were repurchased for a
total cost of EUR31,609,204 (GBP27,844,835)).
Performance Summary
(In millions, except per share At 31 March 2020 At 31 March 2019
data and the number of Ordinary
Shares in issue)
Number of Ordinary Shares
in issue 103,361,401 130,137,627
Market capitalisation(1)
- Ordinary Shares (in Sterling) GBP79.6 GBP126.2
- Ordinary Shares (in Euro) EUR89.9 EUR146.2
Net Asset Value ("NAV") attributable
to Sterling shareholders
- Ordinary Shares EUR96.6 EUR156.1
NAV per share attributable
to Sterling shareholders
- Ordinary Shares (in Sterling) GBP0.8268 GBP1.0361
- Ordinary Shares (in Euro) EUR0.9343 EUR1.1997
Published NAV per share attributable
to Sterling shareholders (2)
- Ordinary Shares (in Sterling) GBP0.8469 GBP1.0405
- Ordinary Shares (in Euro) EUR0.9570 EUR1.2048
Ordinary Share price (bid
price)(1)
In Sterling GBP0.7700 GBP0.9701
In Euro EUR0.8701 EUR1.1232
Ordinary Share price discount
to NAV
In Sterling GBP0.0568 GBP0.0660
In Euro EUR0.0641 EUR0.0765
Ordinary Share price discount
to NAV %(3)
As at year end 6.86% 6.37%
Investment in Alcentra European
Floating Rate Income S.A.
at fair value EUR99.1 EUR156.9
Cash and cash equivalents EUR0.043 EUR1.132
Dividend yield - Ordinary
Shares(3) 5.96% 4.60%
Ongoing Charges(3)
The ongoing charges for the year ended 31 March 2020 were 1.29%
(31 March 2019: 1.14%).
Dividend History
Please refer to note 10 for details on dividends paid during the
year.
(1) Source: London Stock Exchange
(2) Published NAV per Ordinary Share as at 31 March 2020 (29
March 2019). Based on mid price (bid pricing used in financial
statements)
(3) Refer below for the calculation of these alternative
performance measures.
Chairman's Statement
Dear Shareholder,
The Company's NAV per share showed a significant decline over
the past year, decreasing from 103.61p as at 31 March 2019 to
82.68p as at 31 March 2020 based on bid prices as reflected in
these financial statements. The daily NAV per share based on mid
prices published daily on the Regulatory News Service (the "RNS")
moved from 104.05p to 84.69p. The majority of this decline occurred
in March 2020 and directly reflected the turmoil in the markets
around the world from the impact of coronavirus ("COVID-19").
The Company maintained its dividend policy throughout the year
declaring and paying dividends of 4.59p per Ordinary Share.
Additionally, subsequent to the year-end, the Company declared and
paid a dividend of 1.00p per Ordinary Share. As at 31 March 2020,
total dividends paid since inception were 38.54p per Ordinary
Share, giving an overall total return since inception of 24.90%
which equates to an annualised return of 2.79%.
The last financial year has been a year of reflection.
Established in 2012, the Company has provided shareholders with
regular dividends and capital growth and has been well received by
our investors. The Company was listed against a back drop of a low
interest rate environment, which was anticipated to give way to one
of increasing rates, however this did not happen. As a consequence,
the Company's investment proposition has failed to attract wide
investor appeal and management of the discount to NAV became a
constant issue for the Board.
In September 2019, after some concern over trading liquidity in
the shares and the contraction in the Company's share capital base
because of share buybacks, the Company amended its existing
discount control mechanism and introduced a quarterly tender offer.
This allowed shareholders to tender, on a quarterly basis, up to
20% of their holdings at a 1.5% discount to NAV, subject to certain
terms.
Prior to the implementation of the quarterly tender offer, the
Board was actively monitoring the share price, working closely with
the Company's brokers within an agreed framework. The buyback
programme was maintained up until September 2019 with the aim of
limiting the discount to NAV. Between April and October 2019,
10,266,098 Ordinary Shares were repurchased and cancelled.
On the announcement of the quarterly tender offer the Company
was re-rated and its discount narrowed. Nevertheless, in Q4 2019
16,510,128 shares were tendered, bringing the issued share capital
of the Company to 103,361,401 Ordinary Shares at 31 March 2020. An
additional 11,683,734 shares were tendered post year-end as a
result of the Q1 2020 tender offer.
Following this significant contraction in the capital base of
the Company, your Board and Alcentra Limited (the "Investment
Manager") had serious concerns that the Company could not continue
to provide an appropriately diversified portfolio going forward,
while also to remaining a cost effective vehicle for investors.
After consultations with major shareholders, the Board took the
decision to propose changes to the investment objectives and
investment policy. These changes were approved by the Financial
Conduct Authority ("FCA") on 20 April 2020. It was therefore
proposed to shareholders that the Company undergo a managed
wind-down in which investments would be realised in a manner that
achieved a balance between a timely return of cash to shareholders
and a favourable realisation value with regards to cost efficiency,
working capital requirements and current market conditions. It was
also proposed that the Company cease making new investments or
undertaking capital expenditure except to protect or enhance the
value of any existing investments.
The realisation programme has taken place in times of difficult
markets. On 31 December 2019, the World Health Organisation was
notified of an outbreak of COVID-19 in China. During the first
quarter of 2020, the virus spread across other countries including
the UK. This led to an increased level of uncertainty in the
financial markets which triggered volatility in interest rates,
foreign exchange rates, equity prices and materialised credit risks
among others. The COVID-19 crisis has had a significant effect on
the performance of financial markets, with sharp declines seen in
many asset classes in March 2020. European and US sub investment
grade loans and bonds all returned between -13% and -14.5% over the
month.
The most affected borrowers were those with direct end-markets
most affected by the widespread travel restrictions, but many
others would also be impacted by the hit to global GDP over the
remainder of the year. We anticipate that defaults, coercive
exchanges and out-of-court restructurings will ramp up in coming
weeks and months owing to mounting debt levels, depressed loan and
bond prices and minimal operating visibility. The Investment
Manager thinks the most vulnerable sectors will include energy,
healthcare, retail, leisure and transportation. Going forward
markets are expected to remain challenging.
The Investment Manager took the view that the strengthening
market seen at the beginning of June 2020 was a window of
opportunity, following the lows of March 2020, in which to realise
investments. The uncertainties around a potential second peak in
the virus, further bad news about the economic impact on the global
and European economies and the continued uncertainty surrounding
Brexit meant that it was by no means certain that a better
opportunity would present itself in the near term and selling now
was in the interests of all shareholders.
The Investment Manager instigated a phased realisation programme
in May and June 2020 and has sold 100% of the investment portfolio
by two competitive auctions known as Bids Wanted in Competition.
The final sale completed on 10 June 2020 at a result close to the
market value of the portfolio and up on the 31 March 2020 market
value. This will now be followed by the commencement of a process
to place the Company and its subsidiary into voluntary
liquidation.
It has been a pleasure and honour to act as Chairman to the
Company and on behalf of the Board, I would like to close by
thanking shareholders for your continued support and commitment to
the Company over the past eight years.
Ian Fitzgerald
Chairman
2 July 2020
Executive Summary
This report is designed to provide information about the
business and results of the Company for the year ended 31 March
2020. It should be read in conjunction with the Chairman's
Statement and the Investment Manager's Report which give a detailed
review of investment activities for the year and an outlook for the
future.
Corporate Summary
The Company is a non-cellular company limited by shares and
incorporated in Guernsey on 3 November 2011 under the Companies
(Guernsey) Law, 2008, (as amended) (the "Companies Law"), with
registration number 54200. The Company has been authorised by the
Guernsey Financial Services Commission (the "GFSC") as a
closed-ended collective investment scheme.
The Initial Public Offering of the Company took place on 29
February 2012 and the Company commenced business on 6 March 2012,
when its Ordinary Shares were admitted to the premium segment of
the FCA Official List and to trading on the Main Market of the
London Stock Exchange (the "LSE").
The issued share capital of the Company as at 31 March 2020 was
103,361,401 (31 March 2019: 130,137,627) Ordinary Shares, which are
denominated in Sterling. As at 31 March 2020 16,510,128 Ordinary
Shares were held in treasury (31 March 2019: nil). For details of
the Company's share capital, refer to note 9.
The Company has a wholly-owned subsidiary Alcentra European
Floating Rate Income S.A., (the "Subsidiary") which is incorporated
in Luxembourg.
The Company is a member of the AIC.
Significant Events During the Year Ended 31 March 2020
Share Buybacks
As part of its active discount management policy, in addition to
the tendered shares detailed below, the Company repurchased and
cancelled 10,266,098 Ordinary Shares during the year for a total
cost of EUR11,444,480 (GBP10,119,819) (Year ended 31 March 2019:
28,195,844 Ordinary Shares were repurchased for a total cost of
EUR31,609,204 (GBP27,844,835)).
Quarterly Tender Offer
Following a comprehensive review of the outlook for the Company,
in tandem with extensive shareholder consultation, the Board
concluded that shareholders would be best served by strengthening
the Company's approach to discount control through the introduction
of quarterly tender offers to replace the existing redemption
mechanism. This was approved by shareholders at the Annual General
Meeting held on 26 September 2019 (the "2019 AGM").
The following shares have been tendered:
Quarterly tender Settlement Ordinary Tender price Tender price
date Shares tendered less the expenses
of the quarterly
tender offer
December 2019 12 February 16,510,128 GBP1.0182 GBP1.0177
tender 2020
March 2020 tender 15 May 2020 11,683,734 GBP0.8342 GBP0.8335
Managed wind down
On 12 March 2020, the Board announced that it had conducted a
comprehensive review of the outlook for the Company and had
determined that the Company should be put into a managed wind-down,
with cash returned to shareholders in a timely and efficient
manner. In light of this decision, the Board suspended further
quarterly tender offers.
On 22 April 2020, the Company published a circular convening an
Extraordinary General Meeting for 18 May 2020 ("2020 EGM") at which
it sought approval from shareholders to amend the Company's
investment objective and policy and approve any related matters
necessary to facilitate a managed wind-down. All of the resolutions
proposed at the 2020 EGM were duly passed, refer to Directors'
Report for further information.
Investment Manager
The Investment Manager was incorporated in England and Wales on
4 March 2003, with registration number 2958399. The Investment
Manager is regulated by the UK's FCA and registered as an
investment adviser with the US Securities and Exchange
Commission.
Investment Objective and Investment Policy
Detailed below are the Company's investment objective and policy
as at and for the year ended 31 March 2020. These were subsequently
amended following approval by the Company's shareholders at the
2020 EGM, Refer to Directors' Report for further information.
Original Investment Objective
The investment objective of the Company is to provide its
shareholders with regular quarterly dividends and the opportunity
for capital growth by utilising the skills of the Investment
Manager in selecting suitable investments.
The Company, together with the Subsidiary, as advised by the
Investment Manager, invests either directly or, through
sub-participation, indirectly in floating rate, secured loans or
high-yield bonds issued by European and US corporate entities
predominantly rated below investment grade or deemed by the
Investment Manager to be of a corresponding credit quality.
The Company aims to satisfy the guideline in its investment
policy that at least 80% of its investments are to be in debt
obligations of corporate entities with significant operations, or
which are domiciled, in Western Europe (including the UK).
Investments are expected to be denominated in Euro, Sterling or US
Dollars.
Original Investment Policy
The Investment Manager will select, from the primary and
secondary markets, investments for the Company in the following
asset classes (which may be considered to be non-investment
grade):
-- secured loans, including senior loans, mezzanine loans and second lien loans;
-- senior secured floating-rate notes; and
-- senior secured and senior unsecured high-yield bonds.
The Investment Manager will seek to identify investment
opportunities that combine an attractive current return with a
strong probability of ultimate return of capital.
Diversification
The Company expects to maintain a diversified portfolio by asset
class, issuer concentration, industry concentration and
geographical exposure (the "Portfolio"). The Company does not
include in its investment policy any exclusion of particular
industry sectors. The Portfolio complies with the following
restrictions (at each date an investment is made by the
Company):
-- at least 80% of the Company's NAV in senior loans, senior
secured floating-rate notes and cash;
-- no more than 20% of the Company's NAV in second lien loans and mezzanine loans; and
-- no more than 5% exposure to any single obligor.
In addition, the Company will aim to satisfy the following
guideline criteria for the Portfolio:
-- no more than 15% of the Company's NAV in unsecured
floating-rate notes, secured or unsecured fixed rate bonds or
structured credit instruments;
-- no more than 20% exposure to any single industry sector; and
-- at least 80% exposure to corporate entities with significant
operations, or which are domiciled, in Western Europe (including
the UK).
The above investment objective was in force until 18 May 2020,
when the investment policy changed to facilitate an orderly
realisation of all assets and a return of capital to
shareholders.
Key Performance Indicators
In order to measure the success of the Company in meeting its
objectives and to evaluate the performance of the Investment
Manager, the Directors take into account the following performance
indicators:
Returns and NAV
The Board reviews and compares, at each meeting, the NAV and
Ordinary Share price of the Company. The Directors regard the
Company's NAV total return as being the overall measure of value
delivered to shareholders over the long term. Total return reflects
both NAV growth of the Company and also dividends paid to
shareholders. The Company targets a total return in excess of 5%
per annum over the longer term.
The NAV total return of the Company's Ordinary Shares is 24.90%
since inception to 31 March 2020. Please refer to the Financial
Highlights and Performance Summary for NAV and share price
analysis.
Discount/Premium to NAV
At each Board meeting, the Board monitors the level of the
Company's discount or premium to NAV and reviews the average
discount/premium for the Company's peer company. The Company
publishes its NAV per share on a daily basis via the RNS of the LSE
. This figure is calculated in accordance with the AIC formula
which includes current financial year revenue. Please refer to the
Financial Highlights and Performance Summary for NAV and share
price analysis.
Dividend Yield
The Board examine the revenue forecast quarterly and consider
the yield on the Portfolio and the amount available for
distribution. The dividend yield is detailed in the Financial
Highlights and Performance Summary.
Benchmark Performance
The Board considers the peer company performance of other income
funds at each quarterly Board meeting. Please refer to the
Investment Manager's Report for performance summary, market review
and outlook.
Key Risks and Uncertainties
The Board is responsible for the Company's system of internal
controls and for reviewing its effectiveness. Each year the Board
carries out a comprehensive and robust assessment of the principal
risks and emerging risk and uncertainties that the Company faces.
As at the reporting date the risks identified are as follows:
Investment Activity and Performance
An inappropriate investment strategy may result in
under-performance against the Company's objectives. The Board
manages these risks by ensuring a diversification of investments.
The Investment Manager operates in accordance with the investment
limits and restrictions policy determined by the Board. The Board
reviews the limits and restrictions on a regular basis, while BNP
Paribas Securities Services S.C.A., Guernsey Branch (the
"Administrator" and the "Custodian") monitors adherence to the
limits and restrictions every month and will notify any breaches to
the Board.
The Investment Manager provides the Board with management
information including performance data and reports.
As the size of the Company has reduced due to share buy backs
and latterly tender offers ensuring appropriate diversification has
been seen as an increasing risk. Therefore the Board, on the
recommendation of the Investment Manager, put to a shareholder vote
that the investment objective and policy be changed to pursuing a
strategy of realisation of the Company's investments and a return
of capital to shareholders. This new policy was adopted on 18 May
2020 and has largely mitigated the investment activity and
performance risks described above.
Market price risk
The market value of the portfolio may vary because of a number
of factors, including, but not limited to, the financial condition
of the underlying borrowers, the industry in which a borrower
operates, general economic or political conditions, interest rates,
the condition of the debt trading markets and certain other
financial markets, developments or trends in any particular
industry and changes in prevailing interest rates. The Investment
Manager carries out extensive due diligence on each borrower which
is subsequently assessed by its credit committee to mitigate this
risk.
On 18 May 2020, the Company's investment policy was amended to
pursue an orderly realisation strategy and a return of capital to
investors. Market conditions were seen as the principal risk to the
realisation programme, especially as the impact of COVID-19 was not
fully known and the economic impact factored into market prices.
The Investment Manager had sold 100% of the Subsidiary's
investments by competitive auction by early June and consequently
this risk has been fully mitigated. As the transactions were with
known counterparties and settlement is due within 4 to 6 weeks,
counterparty risk is considered to be minimal.
Accounting, legal and regulatory risk
The Company must comply with the provisions of the Companies
Law. The Companies Law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS") and applicable law. Under the Companies Law
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that
period.
Since the Company's shares are admitted to listing on the FCA's
Official List and to trading on the Main Market of the LSE, the
Company is subject to the Listing Rules of the FCA (the "Listing
Rules") and the Disclosure Guidance and Transparency Rules of the
FCA (the "DTR"). A breach of the legislation could result in the
Company and/or the Directors being fined or subject to criminal
proceedings. A breach of the Listing Rules could result in the
suspension of the Company's shares. The Board, with the assistance
of the Company Secretary and advisers, ensures adherance to the
Guernsey legislation and the FCA's rules.
The Investment Manager is contracted to provide investment
services and the Administrator, company secretarial, administration
and accounting services through qualified professionals. The Board
receives regular internal control reports from the Administrator
that confirm compliance. The Subsidiary, must comply with the
regulatory and statutory rules and requirements in Luxembourg. The
Board, with the assistance of the Company Secretary and advisers,
ensure the Subsidiary adheres to Luxembourg legislation.
Operational
Disruption to, or the failure of, either the Investment
Manager's or the Administrator's accounting, dealings or payment
systems, or the custodian's records could prevent the accurate
reporting or monitoring of the Company's financial position.
Details of how the Board monitors the services provided by the
Investment Manager and the Administrator, and the key elements
designed to provide effective internal control are explained
further in the Internal Controls and Risk Management section in the
Directors' Report below.
COVID-19
The beginning of 2020 has seen a dramatic increase in the
volatility of global financial markets due to the COVID-19
pandemic. The Company does not employ leverage and as at 31 March
2020 had a well-diversified portfolio of liquid assets and had
adequate resources to meet is ongoing expenses and obligations as
they fall due. Some of the underlying portfolio was exposed to the
financial impact of COVID-19, which the Investment Manager kept
under review.
Subsequent to the reporting date all investments held by the
Company's Subsidiary have been sold.
Company Purpose
The Company has been established as an investment Company to
provide shareholders with regular dividends and to provide capital
growth in the longer term by investing in a diversified portfolio
of floating rate secured loans issued by European and US entities.
Due to a continued low interest rate environment it has become
harder to achieve the Company's long term purpose. As a
consequence, on 18 May 2020, the shareholders voted to change the
investment policy of the Company to allow for an orderly
realisation strategy and a return of capital to shareholders,
following which the Company will be wound up.
Culture of the Company
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the UK Governance
framework, including the FCA as well as other relevant bodies such
as the GFSC and the AIC. Central to the culture is communication,
respect and trust which is integral to the relationship between the
Company and all of its stakeholders. The Board continue to monitor
the Company's culture on an on-going basis and provides feedback to
shareholders and other stakeholders as appropriate. Both the Board
and the Investment Manager believe responsible investing can help
enhance society and apply Environmental, Social and Governance (the
"ESG") criteria when investing.
Section 172(1) Statement
Through adopting the AIC Code, the Board acknowledges its duty
to comply with section 172 of the UK Companies Act 2006 to act in a
way that promotes the success of the Company for the benefit of its
members as a whole, having regard to (amongst other things):
a) consequences of any decision in the long-term;
b) the interests of the Company's employees;
c) need to foster business relationships with suppliers, customers and others;
d) impact on community and environment;
e) maintaining reputation; and
f) act fairly as between members of the Company
Information on how the Board has engaged with its stakeholders
is outlined below.
The Board considers the factors outlined under section 172 and
the wider interests of stakeholders as a whole in all decisions it
takes on behalf of the Company.
The Board recognises that stakeholder relationships are key to
ensuring the Company's continued success. As an investment company,
with no employees, the Company's principal working relationships
are with the Investment Manager and the Company's service
providers.
The Company's main working relationship is with the Investment
Manager who the Board hold to account for the management of the
Company's investments, ensuring that the Investment Manager remains
responsible for ethical investment and since 18(th) May 2020 to
ensuring that assets are realised in an appropriate time scale and
to the benefit of shareholders. Engagement with the Investment
Manager is via their regular attendance at Board meetings where
they updated the Board on matters which affect the Company, its
investments and the loan market in general.
To ensure the success of the Company, good relationships with
our service providers, including the Administrator, the Company's
lawyers, Custodian, registrar and broker is vital. We maintain and
monitor our relationships with regular reporting from the key
providers to the Board and by providing appropriate compensation.
Each relationship is reviewed annually by the Management Engagement
Committee, with a questionnaire being completed by each service
provider, to allow them an opportunity to provide feedback to the
Company.
The Board places great importance on communications with our
shareholders. The Annual General Meeting provides an opportunity
for shareholders to raise questions of the Board and the Investment
Manager. In addition, the Chairman, met with major shareholders
during the year. Shareholders may also communicate with the Board
at any time by contacting the Company's registered office or
through the broker.
The Board has engaged directly with all stakeholders concerning
discount management, whether a change in investment policy was
appropriate and ultimately the decision, taken post year end, to
commence an orderly realisation of the Company's assets and return
capital to shareholders.
Viability Statement
Under the AIC Code of Corporate Governance, issued in February
2019 (the "AIC Code"), the Directors are required to make a
viability statement which explains how they have assessed the
prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, taking into
account the Company's current position and principal and emerging
risks.
At the 2020 EGM, shareholders approved a change in the
investment objective and policy in order to pursue a strategy of
realisation of the Company's investments and to return capital to
shareholders.
Subsequently, in June 2020, the Subsidiary has realised the loan
portfolio and the Company, through the redemption of the Profit
Participating Bonds it holds with the Subsidiary, will shortly
receive and hold only cash. The Company will now return capital to
shareholders through a redemption of shares and subsequently place
both the Subsidiary and the Company into voluntary liquidation.
The Directors have modelled the cash required for the wind down
and liquidation process, over the twelve month period from 1 July
2020 to 30 June 2021 at which point the directors consider that the
Company will have been liquidated. This will be used by the
Directors to determine the timing of the return of capital and the
level of cash which needs to be retained by the Company to fund the
liquidation process.
Although it is impossible to determine with complete accuracy
how long the final liquidation process will take, the Directors
conclude that the Company has sufficient cash and liquid resources
to complete its wind down and liquidation in an orderly manner
including paying all future operating and liquidation expenses.
Going Concern
Under the AIC Code and applicable regulations, the Directors are
required to satisfy themselves that it is reasonable to assume that
the Company is a going concern from the date of approval of the
audited financial statements.
For the December 2019 quarterly tender, 16.5 million Ordinary
Shares were tendered and repurchased by the Company during the
year. Subsequent to the year-end, for the March 2020 quarterly
tender an additional 11.7 million Ordinary Shares were repurchased
by the Company. These two quarterly tenders represent 23% of the
Ordinary Share capital of the Company. The Directors conducted a
comprehensive review of the outlook for the Company due to the
number of Ordinary Shares that had been repurchased and assessed
the Company's ability to continue as a going concern. The Directors
conducted extensive shareholder consultation and believed that
shareholders would not be supportive of a reconstruction or
reorganisation of the Company and therefore recommended to
shareholders a change in the investment objective and policy in
order to pursue a strategy of realisation of the Subsidiary's
investments and return of capital to shareholders. Changes to the
investment objective and policy were approved by shareholders at
the 2020 EGM, as further detailed in the Directors' Report
below.
As a consequence of the above, the Directors consider it is
appropriate to adopt a basis other than going concern in preparing
the financial statements given the fact that the investments held
by the Subsidiary have been fully realised post year end and that
the Company is expected to be put into liquidation within 6 months
from the date of approval of these financial statements.
As a result of the application of a basis other than going
concern, costs expected to be paid in relation to the wind-up of
the Company have been accounted for as part of a provision.
Discount Control Mechanism
From 1 April 2019 to 26 September 2019 the Company's Articles of
Incorporation detailed the following discount control mechanism:
if, as at 31 March, 30 June, 30 September or 31 December in any
calendar year, the Ordinary Shares of any class in issue had, on
average over the last twelve calendar months preceding such date (a
"Discount Calculation Period"), traded at an average discount in
excess of 5% of the NAV per share of that class(1) , the Directors
would, subject to any legal or regulatory requirements, implement a
redemption offer (a "Redemption Offer") pursuant to which each
shareholder of the relevant class shall be permitted to redeem up
to 50% of their Ordinary Shares of that class.
The Company's Ordinary Shares traded at an average discount of
less than 5% of the NAV per Ordinary Share in each Discount
Calculation Period during the period from 1 April 2019 to 26
September 2019, at which point the discount control mechanism was
removed pursuant to the amended Articles of Incorporation adopted
at the 2019 AGM.
Share Buybacks
At the Extraordinary General Meeting held on 3 April 2019 (the
"2019 EGM"), the Directors were granted authority to repurchase
20,106,191 Ordinary Shares for cancellation or to be held as
treasury shares. This authority expired at the 2019 AGM. At the
2019 AGM the Directors were granted authority to repurchase
18,295,003 Ordinary Shares for cancellation or to be held as
treasury shares. The Company repurchased and cancelled 10,230,098
Ordinary Shares during the year.
Quarterly Tender Offer
At the 2019 AGM, the Directors were granted authority to
repurchase, by way of quarterly tender offer, an amount equal to 20
per cent of each shareholders' Ordinary Shares in issue. During the
year, the Company repurchased 16,510,128 Ordinary Shares by way of
tender offer for the quarter ended 31 December 2019 and holds these
shares in treasury. Subsequent to the year end, the Company
repurchased a further 11,683,734 Ordinary Shares by way of tender
offer for the quarter ended 31 March 2020 and holds these shares in
treasury.
Environmental and Social Issues
The Company is a closed-ended investment company which has no
employees and therefore its own direct environmental impact is
minimal. The Board notes that the companies in which the Company
invests will have a social and environmental impact over which the
Company has little to no control. The Board, the majority of whom
are based in Guernsey, have held all their meetings in Guernsey and
therefore the Company's greenhouse gas emissions and environmental
footprint are negligible.
The ESG criteria, is applied to ensure the Company undertakes
sustainable and or socially responsible investing. In formulating
and implementing a responsible investment policy, the Investment
Manager takes into account its responsibilities towards protecting
all stakeholders including its clients, shareholders and employees
with regard to investment and performance as well as its position
as an agent acting on behalf of these clients.
(1) Calculated by reference to the middle market quotations (mid
price) of the shares of that class on the Daily Official List of
the LSE on each trading day in the relevant Discount Calculation
Period and the most recently published NAV per share of the
relevant class for each such trading day. In accordance with the
Company's accounting policies, the financial statements have been
prepared using bid price.
Responsible investment forms an integral part of the investment
research process. The Investment Manager believes that responsibly
managed companies are better placed to achieve sustainable
competitive advantage and provide strong long-term growth.
The Company is not within scope of the Modern Slavery Act 2015
("the Act"), because it has no turnover as defined by the Act and
is therefore not obliged to make a human trafficking statement.
Gender Metrics
The Board consists of two women and one man. More information on
the Board's consideration of diversity is given in the Corporate
Governance Report below.
Life of the Company
The Company does not have a fixed life. At the 2019 AGM a
continuation resolution proposing that the Company continue its
business as a closed-ended investment company was passed.
At the 2020 EGM, approval was gained from shareholders to amend
the Company's investment objective and policy and approve any
related matters necessary to facilitate a managed wind-down, as
further detailed in the Directors' Report below.
Since the passing of the resolution all investments within the
Subsidiary's portfolio have been realised and the Company will now
commence the process of returning capital to shareholders and
placing the Subsidiary and the Company into voluntary liquidation.
The Board expect to recommend to shareholders to appoint a
liquidator within 6 months from the date of approval of these
financial statements, terminating the life of the Company.
This Strategic Report was approved by the Board of Directors on
2 July 2020 and signed on its behalf by:
Ian Fitzgerald Trudi Clark
Chairman Audit Committee Chairman
Investment Manager's Report
Summary
-- The Sterling NAV per Ordinary Share declined during the 12
months to 31 March 2020 from 104.05p to 84.69p as published in RNS.
This was predominantly driven by market specific conditions during
the period;
-- In latter quarters of 2019 the NAV per share enjoyed a
relatively steady growth which continued to January 2020 this was
due to the broadly stable market conditions with good loan issuance
and robust demand.
-- The dividend has grown from 4.46p for the 12 months ending
March 2019 to 4.59p the 12 months ending March 2020. This was
predominantly driven by exceptional dividend payment in relation to
Q4 2019, in that 0.18p per share was paid out of capital.
-- Q1 2020 saw unprecedented market disturbances due to global
spread of COVID-19, the market for new loan issuance experienced
closures with scant new deals pricing. Similarly CLO formation was
muted, with only three deals pricing early in the month and with
market closure to issuances towards the end of March 2020.
-- The share price has fallen from 97.0p to 77.0p over the
period, with the discount to NAV as of 31 March 2020 standing at
-6.86%. Much of this drop can be attributed to the Company's
performance in March of -17.18% gross. During the month, concerns
about the impact of the COVID-19 virus outbreak evolved from an
initial focus on the risk of a supply shock driven by Asian
shutdowns to concerns about the impact of the pandemic on
businesses globally. As a result of this, European loan prices were
down -14% for the month. There were signs of improvement towards
the end of the month that continued on into April as prices rallied
in response to the unveiling of extraordinary fiscal stimulus and
monetary support measures.
-- The default rate for the 12 months ending March 2020 remained
broadly stable at 0.43%(1) , however the impact of the COVID-19 on
certain corporates is likely to lead to an increase from this low
level. We believe businesses where travel and mobility restrictions
as well as working capital unwinds are causing near term liquidity
pressures are the most likely to bring this figure up - with
S&P now forecasting an 8% default rate for the European market
in 2020. However, the final figure on defaults and 2020 performance
will be directly correlated with the duration and severity of the
outbreak.
(1) S&P Default Ratio 31 March 2020.
Note on Foreign Exchange Hedging in period
The Company maintains its accounts in EUR and with the
outstanding Ordinary Shares in issue solely denominated in GBP, the
Company activity hedges foreign exchange risk by utilising foreign
exchange forward contracts.
Portfolio and Performance
-- As at 31 March 2020, the portfolio was invested in line with
the Company's investment policy and was diversified by obligor and
industry with 76 issuers/borrowers across 18 different industry
sectors and no individual borrower representing an exposure of more
than 5% of the portfolio.
-- Against a volatile financial markets backdrop over the past
few years, the Company's performance has been strong and with lower
volatility than HY and equity markets.
-- The Company remains relatively conservatively positioned,
with low exposure to Junior Debt (5.95%), High Yield (0%) and Fixed
Rate Bonds (10%).
-- The strong performance relative to the Loan Index was
predominantly driven by strong asset selection within the Company
during the period, partially offset by a small element of cash
drag.
Key Portfolio Statistics and Positioning as at 31 March 2020
-- The Company remains relatively conservatively positioned but
with an attractive current floating rate margin of 4.37% and yield
to maturity of 10.12%.
o The Company's current exposure to junior debt at 4.72% remains
low as we do not currently believe that the risk adjusted return
for junior debt is attractive.
o Similarly, exposure to fixed rate assets remains low at 7.94%
for the same reason.
o The Company maintains a low exposure to USD debt at 0.88% as
the cost of hedging these assets means the returns for a Euro NAV
fund are not attractive, while volatility for USD Loans is higher
than for EUR loans.
-- From a sector point of view we are focussed on investing in
more defensive sectors, with the largest sector exposure being
Services and Healthcare. We remain underweight sectors such as
Retail, which is experiencing structural changes away from the high
street as well as more cyclical and capex intensive sectors such as
Autos and Shipping.
-- While headline UK at 21.92% appears high, a large portion of
the issuers classified as UK are actually more global or
pan-European in nature. As such, the Company's direct exposure to
the UK economy is lower, with limited exposure to businesses at
risk from Export tariffs.
Key Statistics
Number of Issuers 77
===================================== =======
Number of Assets 88
===================================== =======
Number of Industries 18
===================================== =======
Weighted Average Mid Price of
the Portfolio 81.67
===================================== =======
Portfolio Current Yield 5.68%
===================================== =======
Yield to Maturity (Legal) 10.12%
===================================== =======
Percentage of Portfolio in Floating
Rate Assets 69.93%
===================================== =======
Weighted Average Floating Rate
Plus Margin 4.37%
===================================== =======
Weighted Average Coupon 5.59%
===================================== =======
Weighted Average Maturity (Years) 4.77
===================================== =======
5 Largest Holdings
Issuer % of Market Currency Country
value(1)
===================== ==================== ============= =========
Stiga 3.20 EUR ITA
===================== ==================== ============= =========
Stars Group 2.46 EUR NL
===================== ==================== ============= =========
Prosol 2.38 EUR FR
===================== ==================== ============= =========
MFG 2.35 GBP UK
===================== ==================== ============= =========
Ameos 2.33 EUR LUX
===================== ==================== ============= =========
5 Largest Industry Positions
Issuer % of Market value(1)
============================================ =======================
Services 19.44
============================================ =======================
Health Care 12.92
============================================ =======================
Technology, Electronics, Software & IT 10.17
============================================ =======================
Retail (non-food/drug) 9.29
============================================ =======================
Gaming 5.80
============================================ =======================
Asset Breakdown % of Market value(1)
Senior secured loans 80.76
====================== =====================
Senior secured FRNs 1.53
====================== =====================
Junior Debt 5.95
====================== =====================
Senior secured bonds 10.02
====================== =====================
Equity 1.74
====================== =====================
Currency Breakdown % of Market value(1)
Euro 70.21
==================== =====================
Pound Sterling 28.67
==================== =====================
US Dollar 1.12
==================== =====================
Geographical Region % of Market value(1)
UK 24.76
===================== =====================
Luxembourg 19.88
===================== =====================
France 15.70
===================== =====================
Germany 13.81
===================== =====================
Netherlands 11.08
===================== =====================
Others 14.77
===================== =====================
(1) Market value of the portfolio of investments held by the
Subsidiary.
Senior Secured Loans -An Investment Opportunity
Key attractions of loans
-- In Q1 2020 the average new issue spread was E + 3.56%, with
an average interest rate floor of 6bps, mainly a reflection of the
constructive market conditions earlier in the quarter(3) .
-- Senior secured, so lower risk of loss in the event of default than unsecured asset classes.
-- Defaults have stayed low, with the S&P's default rate at
0.43% in March 2020(4) . However, we would expect this to rise from
here due to the impact of the COVID-19 corporates in the
market.
(3) Standard & Poor's LCD Global Leveraged Lending Review Q1
2020
(4) Standard & Poor's LCD European Leveraged Lending Review
March 2020
European Loan Market Commentary
-- Despite a continued low growth environment in Europe,
defaults have stayed low, with the S&P's default rate at 0.43%
in March 2020, versus 0.00% in March 2019. As a result of the
impact of COVID-19, the S&P now expects a material increase to
the high single digits in Europe over the next 6 to 12 months.
-- Before the actions taken to limit the spread of the COVID-19
virus, both Europe and the US were seeing positive GDP growth. The
US saw a strong recovery while Europe's recovery differed country
by country.
-- Default rates are likely to rise from their pre-virus low
levels with S&P forecasting a default rate of 8% for the
European Loan market and 10% for the US market.
-- While loan issuance was robust at EUR80.9bn, it was
approximately -16% lower year-over-year. The main driver of the
decline was lower M&A driven issuance volumes due to a lower
share of "jumbo" leveraged buyouts (the "LBOs") compared to
2018.
-- Issuance slowed in Q1 2020 with the primary markets closing
in March and it is hard to see M&A activity picking up until
the uncertainty abates.
Market Technicals and Outlook
-- The onset of the coronavirus led to a significant widening in
the market with prices moving from the 90s to the 70s.
-- The first half of March 2020 saw a theme of dealer de-risking
as spreads widened to 1200s and liquidity was constrained.
-- We believe we have already seen significant correction for
assets directly impacted by the lockdown.
-- For those with an investment horizon of 2-3 years, the
current technicals provide an attractive entry point for an asset
class backed by large businesses that we expect to be able to
support their obligations over the long term.
Price and Discount Margin Moves Jan Feb 23rd March March April
-------------------------------- ------ ------ ---------- ----- -----
Price
------ ------ ---------- ----- -----
CS WELLI exc USD 98.49 97.50 79.06 83.09 89.09
------ ------ ---------- ----- -----
CS WELLI 98.54 97.29 78.33 83.64 88.92
-------------------------------- ------ ------ ---------- ----- -----
US Loans (EUR) 96.63 95.07 76.48 82.70 85.69
-------------------------------- ------ ------ ---------- ----- -----
EU HY 103.16 100.85 82.34 86.87 91.11
------ ------ ---------- ----- -----
US HY (EUR) 100.22 98.24 78.60 86.03 89.09
-------------------------------- ------ ------ ---------- ----- -----
3 year DM/YTW
-------------------------------- ------ ------ ---------- ----- -----
CS WELLI exc USD 410 445 1182 920 722
-------------------------------- ------ ------ ---------- ----- -----
CS WELLI 398 445 1212 895 721
------ ------ ---------- ----- -----
BB 240 274 883 610 416
-------------------------------- ------ ------ ---------- ----- -----
B 401 456 1269 997 758
-------------------------------- ------ ------ ---------- ----- -----
CCC 934 941 1741 1843 1499
-------------------------------- ------ ------ ---------- ----- -----
US Loans (EUR) 472 522 1275 926 827
------ ------ ---------- ----- -----
EU HY 307 368 843 733 606
-------------------------------- ------ ------ ---------- ----- -----
US HY (EUR) 555 619 1140 906 806
-------------------------------- ------ ------ ---------- ----- -----
Source: EU HY: ICE BofAML European Currency High Yield Index, US
HY: ICE BofAML US High Yield Master.
Change in Investment Policy to Realisation of Assets and Return
of Capital
Following the recovery in loan market prices seen in April 2020
and May 2020, we took the decision in early June 2020 to take
advantage of these improved conditions to realise the assets held
in the Subsidiary. We felt this timing was best as asset prices had
significant recovered from their March 2020 lows and it was prudent
to take advantage of these stronger conditions when available,
given the scope for further volatility from a second wave of the
COVID-19 virus or negative macro-economic headlines.
We executed the sale of the assets in the Subsidiary via a
competitive auction process where market participants provide their
best bid on each asset. We felt that this process was the most
efficient manner to execute the wind-down as it minimises
transaction costs (both transfer fees and bid-ask spreads) and
maximises prices. We undertook two auctions: the first, on 3 June
2020, focussed on a small number of less liquid assets held by the
Subsidiary, and the second, on 10 June 2020, on the more liquid
names. The rationale for this was to make sure that we received
bids on the first auction for credits that had been more affected
by COVID-19 and were not left with a tail of these less sought
after credits at the end of the process. Demand was strong and we
were able to execute sales on all assets held by the Subsidiary via
these two auctions at prices that enabled us to realise the whole
portfolio at close to NAV.
Alcentra Limite d
2 July 2020
Directors' Report
The Directors present the Annual Report and audited financial
statements of the Company for the year ended 31 March 2020.
Board of Directors
The Directors of the Company who served during the year and
their biographies are detailed below.
Jonathan Bridel retired from the Board on 30 June 2019.
Directors' Interests
None of the Directors had a material interest in any contract,
which is significant to the Company's business. The Directors had
the following interest in the Company's share capital during the
year ended 31 March 2020 as follows:
Director Number of Ordinary Shares
Trudi Clark 7,500
Anne Ewing 5,000
Ian Fitzgerald 15,000
There have been no changes in the interests of the Directors
since the year-end.
Statement of Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Internal Controls and Risk Management
The Risk Committee has established a process for identifying,
evaluating and managing any major risks faced by the Company. The
process is subject to regular review by the Board and accords with
the AIC Code.
The Risk Committee is responsible in ensuring that all risks
affecting the Company are identified through a robust assessment
and that a policy is implemented to mitigate, monitor and manage
these risks which should include:
-- Market risk;
-- Liquidity risk;
-- Counterparty risk;
-- Operational risk; and
-- Conflicts of interest.
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. However, such a system
is designed to manage rather than eliminate risks of failure to
achieve the Company's business objectives and can only provide
reasonable and not absolute assurance against material misstatement
or loss.
The Board receives reports from the Investment Manager on the
Company's risk evaluation process and reviews changes to key risks
identified. The Board has undertaken a full review of the Company's
business risks, which have been analysed and recorded in a risk
report, which is reviewed and updated regularly. Each quarter the
Board receives a formal report from the Investment Manager which
details the steps taken to monitor the areas of risk including
those that are not directly the responsibility of the Investment
Manager and which reports the details of any known internal control
failures. The Administrator provides the Board with an annual
report on its internal controls which includes a report from the
Administrator's auditor on the control policies and procedures in
operation.
The Investment Manager has established an internal control
framework to provide reasonable but not absolute assurance on the
effectiveness of the internal controls operated on behalf of its
clients. The effectiveness of the internal controls is assessed by
the Investment Manager's compliance and risk department on an
on-going basis. The Investment Manager's controls processes have
also been outlined to the Board.
The Management Engagement Committee conducted a review of the
Investment Manager, the Administrator and the Custodian during the
year ended 31 March 2020 and concluded that the performance of all
had been satisfactory and no internal control issues were noted.
The Committee determined that there had been no drop in service
from any of the key service providers following the impact of
COVID-19 and that all control systems appeared to be functioning
normally.
The Board's assessment of the Company's key risks and
uncertainties is set out above.
By means of the procedures set out above, the Board confirms
that it has reviewed the effectiveness of the Company's system of
internal controls for the year ended 31 March 2020 and to the date
of approval of this Annual Report and that no issues have been
noted.
Share Capital
The share capital of the Company consists of an unlimited number
of shares which the Directors may classify as Ordinary Shares, B
Shares, or C Shares of such classes denominated in such currencies
as the Directors may determine. Since inception of the Company, no
B or C Shares have been issued.
Notifications of Shareholdings
The Company had been notified in accordance with Chapter 5 of
the DTR (which covers the acquisition and disposal of major
shareholdings and voting rights), of the following shareholders
that had an interest of greater than 5% in the Company's issued
share capital as at 31 March 2020.
31 March 2020 Number of voting Percentage of total
rights voting rights (%)
-------------------------------------- ----------------- --------------------
FIL Limited 13,019,766 10%
-------------------------------------- ----------------- --------------------
Weiss Asset Management LP 12,528,930 10%
-------------------------------------- ----------------- --------------------
Alder Investment Management Limited 7,976,812 6%
-------------------------------------- ----------------- --------------------
Israel Englander
Millennium Group Management Trust
Millennium Group Management LLC
Millennium International Management
LP 6,543,221(1) 5%
-------------------------------------- ----------------- --------------------
The following notifications were received post year end:
-- Israel Englander, Millennium Group Management Trust,
Millennium Group Management LLC, Millennium International
Management LP on 19 May 2020 - 4,854,694 number of voting shares
representing 4.413% and on 30 June 2020 - 5,537,075 number of
voting shares representing 5.033%.
-- FIL Limited on 19 May 2020 - 10,857,750 number of voting shares representing 9.86%.
(1) Combined balance as the entities have the same investment
manager.
Borrowing Limits
During the year, the Company did not utilise leverage to achieve
its investment objective. Following shareholders' approval of the
new investment objective and investment policy at the 2020 EGM, the
Company will not utilise leverage.
There were no borrowings as at 31 March 2020 (31 March 2019:
GBPnil).
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its
operations for the year to 31 March 2020, nor does it have
responsibility for any other emission-producing sources.
Independent Auditor
KPMG Channel Islands Limited ("KPMG"), has indicated its
willingness to continue in office as auditor and a resolution
proposing its re-appointment and to authorise the Directors to
determine its remuneration will be proposed at the forthcoming
AGM.
Events After the Reporting Date
At the 2020 EGM shareholders approved the following new
investment objective and investment policy:
Investment Objective
The Company will be managed with the intention of realising all
remaining assets and investments of the Company, in a prudent
manner consistent with the principles of good investment management
with a view to returning capital to the shareholders in an orderly
manner.
Investment Policy
A managed wind-down will be effected with a view to the Company
realising its investments in a manner that achieves a balance
between (i) a timely return of cash to shareholders; and (ii)
seeking to obtain the most favourable realisation value of the
Company's investments, having regard to cost efficiency, working
capital requirements and current market conditions.
The Company will cease to make any new investments or to
undertake capital expenditure except where necessary in the
reasonable opinion of the Board or the Investment Manager in order
to protect or enhance the value of any existing investments or to
facilitate orderly disposals.
Any cash received by the Company as part of the realisation
process prior to its distribution to shareholders will be held by
the Company as cash on deposit and/or as cash equivalents.
The investment restrictions set out in the Prospectus will not
apply during the managed wind-down.
The Company will not employ any gearing.
Subsequent to the 2020 EGM, all investments held by the
Subsidiary have been realised and are either awaiting settlement or
are held in cash.
For and on behalf of the Board
Ian Fitzgerald
Chairman
2 July 2020
Directors' Biographies
Ian Fitzgerald (Non-Executive Chairman and Chairman of the Risk
Committee)
Ian was a Director and Chief Executive Officer of Loans
Specialist Advisory Services Limited, a company established to
provide specialist loan product business services. Ian held senior
management positions within Lloyds Bank Capital Markets from 1997
to 2011. From 2004 he was Managing Director and Head of Loan
Markets, responsible for the bank's primary and secondary loan
market businesses globally, including all corporate, acquisition,
leveraged, project, infrastructure and property-related loan
finance.
Ian joined Lloyds from Hill Samuel as Head of Loan Syndication
and Distribution, upon Lloyds' merger with Hill Samuel TSB Bank plc
in 1997. Prior to joining Hill Samuel in 1992, Ian held senior
lending and syndicate roles at Chemical Bank, Manufacturers Hanover
Limited, Bankers Trust International Limited, and other financial
institutions. Ian commenced his banking career with Barclays Bank
International in 1975. Ian was formerly a non-executive Director of
the Loan Market Association and chairman from 2009 to 2011.
Anne Ewing (Non-Executive Senior Independent Director, Chairman
of the Remuneration and Nomination Committee)
Anne graduated with a Masters of Science Degree in Corporate
Governance & Administration/Grad ICSA and holds an ACCA
Certified Diploma in Accounting & Finance. Anne is a Chartered
Fellow of the Chartered Institute of Securities & Investment, a
Fellow of the Institute of Chartered Secretaries and Administrators
and a past Guernsey Chairman, a Retired Member of the Association
of Corporate Treasurers, a member of the Institute of Directors and
is a past Guernsey Branch Chairman. Anne is a personal member of
the Guernsey Investment Fund Association.
Anne has over 35 years of financial services experience in
banking, asset and fund management, corporate treasury, life
insurance and the fiduciary sector. Anne has held senior roles in
Citibank, Rothschilds, Old Mutual International and KPMG Channel
Islands Limited and latterly has been instrumental in the start-ups
of a Guernsey fund manager and two fiduciary licensees. Anne has a
number of Non-Executive Directorships in private equity structures,
and in a banking group in London and the Channel Islands. Anne is
currently an Independent Non-Executive Director of Alcentra
Structured Credit Opportunities Fund III GP Limited, Alcentra
Structured Credit Opportunities Fund IV GP Limited and of Merian
Chrysalis Investment Company Limited.
Trudi Clark (Non-Executive Director, Chairman of the Management
Engagement Committee and Chairman of the Audit Committee)
Trudi Clark graduated with a first class honours degree in
business studies and is a qualified Chartered Accountant. She spent
10 years in Chartered Accountancy practices in the UK and Guernsey.
In 1991 she joined the Bank of Bermuda to head their European
Internal Audit function before moving into private banking in
1993.
Between 1995 and 2005 she was with Schroders (C.I.) Limited, an
offshore private bank and investment manager. She was appointed
Banking Director in 2000 and Managing Director in 2003. In 2005 she
left Schroders to establish and run a private family office. In
July 2009 Trudi went on to establish the Guernsey practice of David
Rubin & Partners Limited, an internationally known insolvency
and liquidation specialist. Since 2018 Trudi is concentrating on a
portfolio of non-executive directorships. Trudi is currently an
Independent Non-Executive Director of BMO Commercial Property
Trust, NB Private Equity Partners Limited, River and Mercantile UK
Micro Cap Investment Company Limited and The Schiehallion Fund
Limited.
Corporate Governance Report
Introduction
The Board is committed to high standards of corporate governance
and has put in place a framework for corporate governance which it
believes is appropriate for the Company.
Applicable Corporate Governance Codes
In February 2019, the AIC released the AIC Code of Corporate
Governance for accounting periods beginning on or after 1 January
2019 following the release of the revised UK Corporate Governance
Code (the "UK Code") in July 2018. The AIC Code provides specific
corporate governance guidelines to investment companies and
requires listed companies to disclose how they have applied the
principles and complied with the provisions of the UK Code. The
Company has reported against the AIC Code in the Statement of
Compliance section below and detailed within this Corporate
Governance Report. The Board believes this allows shareholders to
make a comprehensive assessment of how the Company has complied
with the principles and provisions of the AIC Code. Following the
requirements of the AIC Code will meet the obligations of the UK
Code, Listing Rules and DTR.
Copies of the AIC Code and the UK Code can be found on the
respective organisations' websites (www.theaic.co.uk and
www.frc.org.uk). The AIC Code includes an explanation of how the
AIC Code adapts the principles and provisions set out in the UK
Code to make them relevant for investment companies.
Corporate Governance Statement
In reporting on the Company's compliance with the AIC Code, the
Company has adopted a comply or explain approach. The Directors
believe that during the year under review the Company has complied
with all of the principles and provisions of the AIC Code insofar
as they apply to the Company's business, with the exception of the
following:
The Company has not adopted a policy in relation to the tenure
of the Chair. With the Company commencing its managed wind-down,
the Board considers that implementing its succession plan at this
stage would not be in the best interests of the Company, or its
shareholders.
The Board, Independence and Composition
The Board consists of three Directors, all of whom are
independent of the Investment Manager and demonstrate a breadth of
investment, accounting, professional knowledge and experience. Anne
Ewing and Trudi Clark are resident in Guernsey, Ian Fitzgerald is
resident in the UK. The Directors' biographies are listed
below.
The Board considers that all the Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be conveyed. The balance and
independence of the Board is kept under review by the Remuneration
and Nomination Committee, details of which can be found below.
The Directors consider that there are no factors, as set out in
the AIC Code, which compromise the Chairman's or other Directors'
independence and that they all contribute to the affairs of the
Company in an adequate manner. The Board reviews the independence
of all Directors annually.
Anne Ewing is the Senior Independent Director. Anne is also an
independent director of two general partners of limited
partnerships which are managed by the Investment Manager. The Board
believe that Anne's relationship with the Investment Manager does
not affect her judgement in respect of her duties. The Board have
discussed Anne's independence with regard to the AIC's guidance on
this matter and concluded that Anne is independent.
Directors' Duties and Responsibilities
The Chairman's responsibilities include the leadership,
operation and governance of the Board, ensuring effectiveness, and
setting the agenda for the Board.
The Board meets at least four times each year and deals with the
important aspects of the Company's affairs, including the setting
and monitoring of investment strategy and the review of investment
performance. The Investment Manager takes decisions as to the
purchase and sale of individual investments, in line with the
investment policy and strategy set by the Board. The Investment
Manager, together with the Company Secretary, also ensures that all
Directors receive all relevant management, regulatory and financial
information relating to the Company and its Portfolio of
investments in a timely manner. Representatives of the Investment
Manager attend each Board meeting, enabling Directors to question
any matters of concern or seek clarification on certain issues.
Matters specifically reserved for decision by the full Board have
been defined and a procedure adopted for Directors in the
furtherance of their duties to take independent professional advice
at the expense of the Company.
The Company Secretary acts as secretary to the Board and
committees and in doing so it:
-- assists the Chairman in ensuring that all Directors have full
and timely access to all relevant documentation;
-- organises induction of new Directors; and
-- is responsible for ensuring that the correct Board procedures
are followed and advises the Board on corporate governance
matters.
Board and Committees
The Board has established four committees: the Audit Committee,
the Management Engagement Committee, the Remuneration and
Nomination Committee and the Risk Committee. Each committee
membership comprises all Directors and operate within clearly
defined terms of reference and duties. The terms of reference for
each committee are available on the Company's website:
www.aefrif.com .
Audit Committee
The Audit Committee is responsible for the provision of
effective governance over the appropriateness of the Company's
financial reporting including the adequacy of related disclosures,
the performance of the external auditor and the management of the
Company's systems of internal controls and business risks. Meetings
of the Audit Committee are to be held at least three times a year
at appropriate times in the reporting and audit cycle and otherwise
as required.
The report on the role and activities of the Audit Committee and
its relationship with the external auditor is set out in the Audit
Committee Report.
Trudi Clark assumed the chair of the Audit Committee when
Jonathan Bridel retired on 30 June 2019.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee is responsible for
ensuring that the Board comprises individuals with the necessary
skills, knowledge and experience to ensure that it is effective in
discharging its responsibilities and oversight of all matters
relating to corporate governance and to review the on-going
appropriateness and relevance of the remuneration policy. Anne
Ewing is the Chairman of the Remuneration and Nomination
Committee.
Performance Evaluation
The Remuneration and Nomination Committee undertakes an
evaluation of the Board on an annual basis. The last evaluation of
the Board took place in April 2020. The performance of each
Director is considered as part of a formal review by the
Remuneration and Nomination Committee. The Directors also meet
without the Chairman present in order to review his performance. As
the Company is expected to be put into liquidation within 6 months
of the date of approval of these financial statements there will be
no further Board evaluations.
The Committee reviewed the performance of the Chairman in his
role and agreed that Mr Fitzgerald is very experienced and his
performance and leadership are an asset to the Company. The
Chairman also reviews each individual Directors' contribution.
As a result of the recommendations made in this year's
performance evaluation, the Board has agreed:
-- that all Directors are considered independent; and
-- all Directors, should be proposed for reappointment at the
2020 AGM, unless a resolution is proposed to place the Company into
voluntary liquidation.
The Remuneration and Nomination Committee considers that while
the Board is small in number, it is very well balanced, works well
together and has diversity through thought, experience, skills,
qualifications, gender and age.
Management Engagement Committee
The Management Engagement Committee is responsible for reviewing
the performance of all service providers (including the Investment
Manager). Trudi Clark is the Chairman of the Management Engagement
Committee.
The Board reviews the performance of the Company's third-party
service providers together with their anti-bribery and corruption
policies to ensure that they comply with the Bribery Act 2010 and
the Prevention of Corruption (Bailiwick of Guernsey) Law 2003, and
ensure their continued competitiveness and effectiveness.
As part of the Board's ongoing evaluation of third party service
providers, it considers and reviews on a periodic basis contractual
arrangements with the major service providers of the Company. A
review of the major service providers was conducted on 30 January
2020 and the Committee concluded the performance of all the
providers had been satisfactory. Since the year end, the Committee
has made enquiries of all service providers as to their contingency
plans as a result of the lockdown in regard to COVID-19. The
Committee has concluded that there had been no deterioration in the
level of service provided by any third party service provider as a
result of the restrictions.
The Committee also performs periodic reviews of the Investment
Manager's procedures for undertaking investment decisions to ensure
decisions are consistent with the approved investment policy and
strategies of the Company.
The Directors have adopted a procedure whereby they are required
to report any potential acts of bribery and corruption in respect
of the Company to the Company's Compliance Officer.
Risk Committee
The main roles of the Risk Committee are identifying and
assessing the key risks and uncertainties facing the Company,
recording and monitoring the position of such risks on a periodic
basis and assessing any mitigating factors of such risks and the
controls implemented by the Risk Committee to mitigate such risks.
This analysis is performed as part of the Business Risk Assessment.
Ian Fitzgerald is the Chairman of the Risk Committee. The key risks
and uncertainties facing the Company that the Board have identified
are detailed above.
The Risk Committee is also responsible for the oversight of the
operational activity including working capital, corporate
governance of the Company and monitoring the regulatory
requirements applicable to the Company under the Alternative
Investment Fund Manager Directive ("AIFMD"). The Committee will
also examine the valuation of the Company investments periodically
throughout the year.
Attendance at scheduled meetings of the Board and its committees
for the year ended 31 March 2020
Quarterly Audit Committee Management Remuneration Risk Committee
Board(1) Ad hoc Engagement and Nomination
Board Committee Committee
(2)
Jonathan Bridel(3) 2/2 0/0 1/1 1/1 1/1 2/2
Trudi Clark 5/5 14/14 3/3 1/1 1/1 5/5
Anne Ewing 5/5 14/14 3/3 1/1 1/1 5/5
Ian Fitzgerald 5/5 13/14 3/3 1/1 1/1 5/5
(1) Two meetings were held in Q2
(2) Ian Fitzgerald is resident in the UK. The Articles of
Incorporation prohibit Directors physically present in the UK from
participating in, counting in the quorum or voting in any meetings.
Ad hoc Board meetings are typically called at short notice, meaning
that Ian was unable to travel to Guernsey for these meetings,
however he did attend via telephone for 10 of the ad hoc board
meetings from the UK and listened whilst complying with the
restrictions imposed by the Articles. On three other occasions he
attended via telephone from France and Norway.
(3) Jonathan Bridel resigned on 30 June 2019.
The Committees report to the Board under separate agenda items,
on the activity of each Committee and matters of particular
relevance to the Board in the conduct of their work.
Directors unable to attend a Board meeting are provided with the
board papers and can discuss issues arising in the meeting with the
Chairman or another Director.
Directors' Appointment, Retirement and Rotation
In accordance with the AIC Code, all Directors submit themselves
annually for re-election by shareholders and will stand for
re-election at the AGM on 24 September 2020, unless a resolution is
proposed to place the Company into voluntary liquidation.
No Director has a service contract with the Company. Directors
have agreed letters of appointment with the Company, copies of
which are available for review by shareholders at the Registered
Office and will be available at the AGM. Any Director may resign in
writing to the Board at any time by providing the required
notice.
Tenure of Non-Executive Directors
The Board has adopted a policy on tenure that is considered
appropriate for an investment company. The Board considers that
length of service does not, by itself, lead to a closer
relationship with the Investment Manager or necessarily affects a
Directors' independence.
The Board's tenure policy seeks to ensure that the Board is well
balanced and will be refreshed from time to time by the appointment
of new Directors with the skills and experience necessary to
replace those lost by Directors' retirements or to complement those
of the existing Directors. The achievement of a sensible balance is
the most important objective for the Board. Directors must be able
to demonstrate their commitment to the Company. The Board seeks to
encompass relevant past and current experience of various areas
relevant to the Company's business.
As shareholders have voted to place the Company into a managed
wind-down, the Board have concluded that it is in the best
interests of shareholders that they remain in place (subject to
shareholder approval) until the wind down has completed.
Accordingly the Company has no formal succession plans for
refreshment of the Board, however it does have contingency plans in
place in the event of an emergency vacancy should they arise.
Conflict of Interests
The Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that conflicts, or
possibly could conflict, with the Company's interests. Directors
are required to disclose all actual and potential conflicts of
interest to the Chairman in advance of any proposed external
appointment. Only Directors who have no material interest in the
matter being considered will be able to participate in the Board
approval process. In deciding whether to approve an individual
Directors' participation, the other Directors will act in a way
they consider to be in good faith in assessing the materiality of
the conflict in accordance with the Company's Articles of
Incorporation.
The Board believes that its powers of authorisation of conflicts
of interest have operated effectively. The Board also confirms that
its procedure for the approval of conflicts of interest has been
followed by the Directors.
Board Diversity
The Board supports the recommendations of the Davies Report and
believes in and values the importance of diversity, including
gender, to the effective functioning of the Board.
However, the Board does not consider it appropriate or in the
interest of the Company and its shareholders to set prescriptive
targets for gender or nationality on the Board.
Induction/Information and Professional Development
Directors are provided, on a regular basis, with key information
on the Company's policies, regulatory requirements and its internal
controls. Regulatory and legislative changes affecting Directors'
responsibilities are advised to the Board as they arise along with
changes to best practice from, amongst others, the Company
Secretary and the auditor. Advisers to the Company also prepare
reports for the Board from time to time on relevant topics and
issues. In addition, Directors attend relevant seminars and events
to allow them to continually refresh their skills and knowledge and
monitor changes within the investment industry. The Chairman
reviewed the training and development needs of each Director during
the annual Board evaluation process. The Chairman confirmed that
all Directors actively kept up to date with industry developments
and issues. Seminars and events attended include those provided by
the AIC.
Directors' Remuneration and Annual Evaluation of the Board and
that of its Audit Committee and Individual Directors
The Remuneration and Nomination Committee periodically reviews
the fees paid to the Directors and compares these with the fees
paid by listed companies generally.
An evaluation of the Board is undertaken annually and considers
the balance of skills, experience, independence and knowledge, its
diversity, how the Board works together as a unit, and other
factors relevant to its effectiveness.
There was no change to the Directors' remuneration during the
year ended 31 March 2020. Details of the remuneration arrangements
for the Board can be found in the Directors' Remuneration
Report.
Independent Advice
The Board recognises that there may be occasions when one or
more of the Directors feels it is necessary to take independent
legal advice at the Company's expense. A procedure has been adopted
to enable them to do so, which is managed by the Company
Secretary.
Indemnities
To the extent permitted by the Companies Law, the Company's
Articles of Incorporation provide an indemnity for the Directors
against any liability except such (if any) as they shall incur by
or through their own breach of trust, breach of duty or
negligence.
During the year, the Company has maintained insurance cover for
its Directors and Officers under a Directors' and Officers'
liability insurance policy.
Relationship with the Investment Manager and the
Administrator
The Board has delegated various duties to external parties
including the management of the investment portfolio, the custodial
services (including the safeguarding of assets), the registration
services and the day-to-day company secretarial, administration and
accounting services. Each of these contracts was entered into after
full and proper consideration by the Board of the quality and cost
of services offered, including the control systems in operation in
so far as they relate to the affairs of the Company.
The Board receives and considers reports regularly from the
Investment Manager and ad hoc reports and information are supplied
to the Board as required. The Investment Manager takes decisions as
to the purchase and sale of individual investments. The Investment
Manager complies with the risk limits as determined by the Board
and has systems in place, including stress testing, to monitor the
liquidity risk of the Company. The Investment Manager and
Administrator also ensure that all Directors receive, in a timely
manner, all relevant management, regulatory and financial
information. Representatives of the Investment Manager and
Administrator attend each Board meeting enabling the Directors to
probe further on matters of concern.
A formal schedule of matters specifically reserved for decision
by the full Board has been defined and published on the Company's
website, and a procedure adopted for Directors, in the furtherance
of their duties, to take independent professional advice at the
expense of the Company within certain parameters. The Directors
have access to the Company Secretary who is responsible to the
Board for ensuring that Board procedures are followed and that
applicable rules and regulations are complied with. The Board, the
Investment Manager and the Administrator operate in a supportive,
co-operative and open environment.
Continued Appointment of the Investment Manager
The Board reviews investment performance at each Board meeting
and a formal review of all service providers is conducted annually
by the Management Engagement Committee. As a result of the review
it is the opinion of the Directors that the continued appointment
of the current Investment Manager on the terms agreed is in the
interest of the Company's shareholders as a whole.
The Investment Manager has extensive investment management
resources and wide experience in managing investment companies.
Shareholder Engagement
The Board believes that the maintenance of good relations with
shareholders is important for the long-term prospects of the
Company. It has, since admission, offered to engage with investors
and liaises closely with the Company's corporate broker in this
respect. During the year, the Chairman met with a number of the
larger investors who are supportive of the Company. The Chairman
and other Directors are available for discussion about governance
and strategy with shareholders and the Chairman ensures
communication of shareholders' views to the Board. The Board
receives feedback on the views of shareholders from its corporate
broker and the Investment Manager, and shareholders are welcome to
contact the Directors at any time via the Company Secretary.
The Board believes that the AGM provides an appropriate forum
for investors to communicate with the Board, and encourages
participation. The AGM is attended by the Directors. There is an
opportunity for individual shareholders to question the Chairman,
the Audit Committee, the Management Engagement Committee, Risk
Committee and the Remuneration and Nomination Committee at the AGM.
Details of proxy votes received in respect of each resolution will
be made available to shareholders at the meeting and will be posted
on the Company's website following the meeting.
The Annual and Interim Reports and a monthly fact sheet are
available to provide shareholders with a clear understanding of the
Company's activities and its results. This information is
supplemented by the daily calculation and publication on the LSE of
the NAV of the Company's Shares. All documents issued by the
Company can be viewed on the website: www.aefrif.com .
2020 AGM
The AGM will be held in Guernsey on 24 September 2020 (the "2020
AGM") at 09:30 BST. The notice for the AGM sets out the ordinary
and special resolutions to be proposed at the meeting. Separate
resolutions are proposed for each substantive issue.
It is the intention of the Board that the Notice of AGM be
issued to shareholders so as to provide at least twenty working
days' notice of the meeting. Shareholders wishing to lodge
questions in advance of the meeting and specifically related to the
resolutions proposed are invited to do so by writing to the Company
Secretary at the address given below. At other times the Company
Secretary responds to letters from shareholders on a range of
issues.
Voting on all resolutions at the AGM is by poll. The proxy votes
cast, including details of votes withheld, are disclosed to those
in attendance at the meeting and the results are published on our
website and announced via the RNS. It is currently the Board's
intention to propose to shareholders at the 2020 AGM that the
Company be wound up and a liquidator appointed. However, it is
possible that this timetable may be delayed due to delays in
settlement or other unforeseen circumstances.
AIFMD
The Alternative Investment Fund Managers Directive (the "AIFMD")
seeks to regulate alternative investment fund managers ("AIFM") and
imposes obligations on managers who manage alternative investment
funds ("AIF") in the EU or who market shares in such funds to EU
investors. The Company is categorised as a self-managed Non EU AIF
for the purposes of the AIFMD. In order to maintain compliance with
the AIFMD, the Company needs to comply with various organisational,
operational and transparency obligations.
The Company has registered with the UK FCA, under the relevant
national private placement regime.
This Corporate Governance Report was approved by the Board of
Directors on 2 July 2020 and signed on its behalf by:
Ian Fitzgerald Trudi Clark
Chairman Audit Committee Chairman
Audit Committee Report
The Audit Committee (the "Audit Committee") comprises three
Directors. Jonathan Bridel retired from the Board and the Audit
Committee on 30 June 2019 and Ian Fitzgerald was appointed in his
place. The AIC code of Corporate Governance permits the Chairman of
the Board to be a member of the Audit Committee but not the Chair.
All of the Audit Committee's members have recent and relevant
financial experience. The qualifications of the members of the
Audit Committee are outlined in Directors' Biographies and can be
found above.
The Chairman of the Audit Committee, Trudi Clark, is a Fellow of
the Institute of Chartered Accountants in England and Wales
("ICAEW"). She has acted as Audit Committee Chairman of a FTSE 250
Investment Company since 2014. After graduating in 1981 she spent
10 years in public practice before moving into Private Banking.
From 2009 to 2018 she held a practicing certificate from the ICAEW.
The Board is satisfied that Trudi Clark has recent and relevant
financial experience, as required under the UK Code.
Role of the Audit Committee
The main roles and responsibilities of the Audit Committee are
the provision of effective governance over the appropriateness of
the Company's financial reporting including the adequacy of related
disclosures, the performance of the external auditor and the
management of the Company's systems of internal controls and
business risks.
The Audit Committee's main functions are:
-- reviewing the Company's financial results announcements and
audited financial statements and monitoring compliance with
relevant statutory and listing requirements;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices including critical
accounting policies and practices;
-- advising the Board on whether the Audit Committee believes
the Annual Report and financial statements, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy;
-- agreeing with the auditor the external audit plan including
discussions on the key risk areas within the audited financial
statements;
-- overseeing the relationship with and appointment of the external auditor;
-- considering the financial and other implications on the
independence of the auditor arising from any non-audit services to
be provided by the auditor;
-- considering the appropriateness of appointing the auditor for non-audit services;
-- scrutiny of the investment valuations; and
-- compiling a report on its activities to be included in the Company's Annual Report.
Internal Controls
The Audit Committee is responsible for reviewing the
effectiveness and internal control policies and procedures over
financial reporting and identification, assessment and reporting of
risk. The Directors have reviewed the BNP Paribas Securities
Services ISAE 3402 Report for the period from 1 October 2018 to 30
September 2019 (on the description of controls placed in operation,
their design and operating effectiveness) on Fund Administration
and Middle Office Outsourcing, and are pleased to note that no
significant issues were identified as relevant to the Company.
In accordance with the FRC's Internal Control: Guidance to
Directors, and the FRC's Guidance on Audit Committees, the Board
confirms that there is an on-going process for identifying,
evaluating and managing the significant internal control risks
faced by the Company.
As the Company does not have any employees it does not have a
"whistleblowing" policy in place, however the Board has reviewed
the whistleblowing procedures of the Investment Manager and have
noted no issues. The Company delegates its main administrative
functions to third-party providers who report on their policies and
procedures to the Board. Key service providers have the option to
contact the Audit Chairman directly if they have any issues.
The Board believes that as the Company delegates its day-to-day
administrative operations to third-parties (which are monitored by
the Board), it does not require an internal audit function.
Audit Committee Meetings
The Audit Committee meets formally at least three times a year.
Only members of the Audit Committee have the right to attend Audit
Committee meetings. However, other Directors and representatives of
the Investment Manager and Administrator will be invited to attend
Audit Committee meetings on a regular basis and other non-members
may be invited to attend all or part of the meeting as and when
appropriate and necessary. The Company's external auditor, KPMG
Channel Islands Limited ("KPMG") is also invited to each
meeting.
In the year ended 31 March 2020, the Audit Committee met on
three occasions and the members' attendance record can be found
above.
Significant Risks in Relation to the Audited Financial
Statements
In relation to the Annual Report and audited financial
statements for the year ended 31 March 2020, the Audit Committee
views the valuation of Subsidiary's investments as a significant
risk. This is considered a significant risk as the investment in
the Subsidiary forms a substantial portion of the Company's assets
and its determination requires judgments and estimates to be made
in relation to certain assets within the Subsidiary's
portfolio.
The Company's investment is the Profit Participating Bonds held
in the Subsidiary, which are designated as fair value through
profit or loss. The fair value of the Profit Participating Bonds
are based on the NAV of the Subsidiary, which has been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRS") and applicable law.
The Audit Committee confirms that the Risk Committee continues
to examine the valuation of the Company's investment and the
underlying investments held in the Subsidiary periodically
throughout the year.
The Audit Committee regularly reviews the valuations prepared by
the Investment Manager for the Subsidiary's investments where
readily available market prices are not available. The valuations
of these investments are scrutinised and compared against
valuations of investments with similar characteristics and are also
subject to a sensitivity analysis based on changes in key
assumptions. As at 31 March 2020, these investments represented
1.78% of total investments. Since all investments held by the
Subsidiary have been realised post year-end, this has given the
Audit Committee the opportunity to compare the valuation as at 31
March 2020 to sales proceeds. The disposal of the Subsidiary's
portfolio after the year-end achieved proceeds of EUR 6,651,372 in
excess of the carrying value of the Subsidiary's portfolio at 31
March 2020.
In addition to the above the Audit Committee reviewed the
quarterly pricing committee minutes and also considered KPMG's
approach to its audit of the valuation in respect of the Company's
investment and the Subsidiary's investments. The Audit Committee
discussed in depth with KPMG its approach to testing the
appropriateness and robustness of the valuation methodology applied
by the Investment Manager to the Subsidiary's investments. The
members of the Audit Committee had meetings with KPMG, where the
audit findings were reported. KPMG did not report any significant
differences between the valuations used by the Subsidiary and the
work performed during their testing process.
Based on the above review and analysis, the Audit Committee
confirmed that they were satisfied with the valuation of the
Subsidiary's investments and subsequently the Company's investment
designated as fair value through profit or loss.
External Audit Process
The effectiveness of the external audit process is dependent on
appropriate audit risk identification at the start of the audit
cycle. The Audit Committee received a detailed audit plan from
KPMG, identifying their assessment of these key risks. For the year
ended 31 March 2020, the primary risk identified was in relation to
valuation of investments. The risk is tracked through the year and
the Audit Committee challenged the work done by KPMG to test
management's assumptions and estimates around this area.
The Audit Committee assessed the effectiveness of the audit
process addressing these matters through the reporting received for
both the interim and year-end financial statements. The Audit
Committee sought feedback from the Investment Manager and the
Administrator on the effectiveness of the audit process.
Appointment and Independence
The Audit Committee considers the reappointment of KPMG,
including the rotation of the Audit Engagement Director, and
assesses its independence on an annual basis. KPMG is required
under Ethical Standards to rotate the Audit Engagement Director
responsible for the Company audit every five years. The current
Audit Engagement Director, David Alexander, has overseen the audit
of the Company for one audit cycle commencing in September 2019.
KPMG has been the Company's auditor since the Company's listing in
2012.
In accordance with the UK Code, the Audit Committee had intended
to put the external audit out to tender following the completion of
this year-end audit. However, in light of the vote by shareholders
on the 18 May 2020 to pursue an orderly realisation of the
Company's investments and return capital to shareholders there is
not considered to be any benefit to shareholders or the Company to
place the external audit service out for tender and consequently a
resolution proposing the reappointment of KPMG as the Company's
auditor will be put to the shareholders at the forthcoming AGM,
except if a resolution is proposed to place the Company into
liquidation at that meeting.
Non Audit Services
To safeguard the objectivity and independence of the external
auditor from becoming compromised, the Audit Committee has a formal
policy governing the engagement of the external auditor to provide
non-audit services. No material changes have been made to this
policy during the year. KPMG will only be appointed to provide non
audit services if it is in the best interests of the Company. KPMG
and the Directors have agreed that all non-audit services require
the pre-approval of the Audit Committee prior to commencing any
work. Fees for non-audit services are tabled annually so that the
Audit Committee can consider the impact on auditor objectivity.
KPMG were remunerated as follows from 1 April 2019 to the date
of approval of the audited financial statements:
GBP
Audit of the Company's financial
statements 50,900
Audit of the Subsidiary's financial
statements 8,036
Total audit fee 58,936
---------
Interim Review of the Company's financial
statements 21,000
Total audit and non-audit related
services fee 79,936
---------
Audit and non-audit fees in presentation
currency:
EUR
---------
Total audit fee 66,600
---------
Total audit and non-audit related
services fee 90,331
---------
During the year ended 31 March 2020, the only non-audit services
provided by KPMG was the interim review, therefore the ratio of
non-audit related services to audit-related and audit services for
the year is 26%.
Audit Committee Evaluation
The Audit Committee's activities formed part of the Board
evaluation performed in the year. Details of this process can be
found under "Performance Evaluation" above.
Trudi Clark
Audit Committee Chairman
2 July 2020
Directors' Remuneration Report
Annual Remuneration Statement
This report meets the relevant rules of the Listing Rules and
the AIC Code describes how the Board has applied the principles
relating to Directors' remuneration. An ordinary resolution to
ratify this report will be proposed at the 2020 AGM.
Remuneration Summary
The Directors of the Company are remunerated per annum as
follows:
-- Chairman and Chairman of the Risk Committee - GBP52,500.
-- Chairman of the Audit Committee and Management Engagement Committee - GBP42,000.
-- Chairman of the Remuneration and Nomination Committee - GBP40,000.
The Company's policy is that Directors may receive a fee of
GBP5,000 each for a C-share issue or similar placement
programme.
Remuneration Policy
The determination of the Directors' fees is a matter dealt with
by the Remuneration and Nomination Committee and the Board. The
Committee considers the remuneration policy annually to ensure that
it remains appropriately positioned. Directors will review the fees
paid to the boards of directors of similar investment companies. No
Director is to be involved in decisions relating to his or her own
remuneration.
The Company's policy is for the Directors to be remunerated in
the form of fees, payable monthly in arrears. No Director has any
entitlement to a pension, and the Company has not awarded any share
options or long-term performance incentives to any of the
Directors. No element of the Directors' remuneration is performance
related.
Directors are authorised to claim reasonable expenses from the
Company in relation to the performance of their duties.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs
and the responsibilities borne by the Directors and should be
sufficient to enable high calibre candidates to be recruited. The
policy is for the Chairman of the Board and Chairman of the Audit
Committee to be paid a higher fee than the other Directors in
recognition of their more onerous roles and more time spent. The
Board may amend the level of remuneration paid within the limits of
the Company's Articles of Incorporation.
Policy Table
Directors' Fees Policy
Element Operation of the Element Maximum Potential Performance Metrics
Value Used for Fees
To recognise time Directors' fees are Current fee Directors are
spent and the responsibilities set by the Remuneration levels are not remunerated
borne and to attract and Nomination Committee. shown in the based on performance
high caliber candidates section on and are not eligible
who have the necessary Annual fees are paid implementation to participate
experience and monthly in arrears. of policy. in any performance
skills. related arrangements.
Fees are reviewed The Company's
annually and against Articles of
those for Directors Incorporation
in companies of similar limit the
scale and complexity. aggregate
fees payable
Fees were last reviewed to the Board
in April 2020. of Directors
to a total
Directors do not receive of GBP300,000
benefits and do not per annum.
participate in any
incentive or pension
plans.
Service Contracts and Policy on Payment of Loss of Office
Any Director may resign in writing with six months' notice to
the Board at any time. Directors' appointments are reviewed during
the annual board evaluation.
No Director has a service contract with the Company. Directors
have agreed letters of appointment with the Company.
All Directors, will stand for re-election annually and will be
put forward for re-election by shareholders at the 2020 AGM. The
names and biographies of the Directors holding office at the date
of this report are listed above.
Directors' Letters of Appointment
Copies of the Directors' letters of appointment are available
for inspection by shareholders at the Company's registered office,
and are available at the AGM. The dates of their letter of
appointments are shown below:
Director Date Appointed
Ian Fitzgerald 3 January 2012
Anne Ewing 3 November 2011
Trudi Clark 1 November 2018
Directors' Interests
The Company has not set any requirements or guidelines for
Directors to own shares in the Company. Refer above for details on
Directors' shareholdings in the Company.
Annual Report on Remuneration
The Company paid the following fees to the Directors for the
year ended 31 March 2020.
Director Fees Other Total Fees Other Total
Fees Fees Fees Fees
EUR EUR EUR GBP GBP GBP
Ian Fitzgerald 60,350 - 60,350 52,500 - 52,500
Trudi Clark 47,515 - 47,515 41,500 - 41,500
Anne Ewing 45,981 - 45,981 40,000 - 40,000
Jonathan Bridel 16,067 - 16,067 10,500 - 10,500
-------- ------ -------- -------- ------ --------
Total 169,913 - 169,913 144,500 - 144,500
======== ====== ======== ======== ====== ========
Anne Ewing
On behalf of the Remuneration and Nomination Committee
2 July 2020
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union and applicable law.
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of its profit
or loss for that period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so. As detailed in Note 2, the
financial statements have not been prepared on a going concern
basis.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website, and for the preparation and dissemination of the
financial statements. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement of the directors in respect of the
Annual Report and financial statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and financial statements, taken as
a whole, are fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
By order of the Board
Ian Fitzgerald Trudi Clark
Chairman Audit Committee Chairman
2 July 2020 2 July 2020
Independent Auditor's Report to the Members of Alcentra European
Floating Rate Income Fund Limited
Our opinion is unmodified
We have audited the financial statements of Alcentra Floating
Rate Income Fund Limited (the "Company"), which comprise the
statement of financial position as at 31 March 2020, the statements
comprehensive income, changes in shareholders' equity and cash
flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information. These
financial statements have not been prepared on the going concern
basis for the reason set out in Note 2.
In our opinion, the accompanying financial statements:
-- give a true and fair view of the financial position of the
Company as at 31 March 2020, and of the Company's financial
performance and cash flows for the year then ended;
-- are prepared in accordance with International Financial
Reporting Standards as adopted by the EU; and
-- comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards, as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key audit matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2019):
The risk Our response
---------------------------- --------------------------- -----------------------------------------------------------
Valuation of investment at Basis: Our audit procedures included:
fair value through profit The Company's sole Internal Controls:
or loss investment in Alcentra We tested the design and implementation of the control
EUR99,134,428 European Floating Rate over the valuation of the Portfolio.
(2019: EUR156,925,154) Income S.A. (the Valuation procedures including use of a KPMG valuation
Refer above in the Audit "Subsidiary") specialist :
Committee Report, note 3.3 is carried at fair value With the support of our own valuation specialist we
accounting policy and note through profit or loss and performed the following procedures over
7 disclosures represents a significant the Portfolio:
proportion of * For 70.81% of the Portfolio, we used our own
the Company's net assets. valuation specialist to independently derive prices
The fair value of the from data vendors and assessed the quality and
Subsidiary is carried at integrity of these price quotes through checking the
an amount equal to the frequency of the pricing, the number of the quotes
Subsidiary's net asset available and the range of the quoted prices.
value ("NAV"). The NAV
includes the fair value of
the Subsidiary's portfolio * For 25.87% of the Portfolio, we used our own
of floating rate valuation specialist to perform a model based
secured loans or valuation, in which yield and spread information of
high-yield bonds, which comparable instruments and relevant classes and/ or
are predominantly rated industry sectors was applied in a discounted cash
below investment grade or flow model, to independently derive prices.
deemed by the Investment
Manager to be of a
corresponding credit * For the remaining 3.32% of the Portfolio, we assesse
quality (the "Portfolio"). d
The Portfolio's fair value management's valuation methodology, where applicable
is EUR76,329,318. performed an evaluation of the Investment Pricing
Debt instruments, Committee Approval Memorandum, reviewed the pricing
representing 98.22% of the source, considered the findings of news searches to
Portfolio, are valued understand circumstances causing pricing changes
based on price quotes. around the year-end, and noted the proximity of
Price quotes are sourced transactions to the year-end, considering whether
from approved pricing these were an appropriate representation of fair
providers. The approved value.
pricing providers source
price quotes from brokers/
market makers and Assessing disclosures:
determine an average bid We also considered the Company's disclosures (see Note 7)
price after adjusting in relation to the use of estimates
for outliers, if any. and judgments, including the Company's assessment of the
For the remaining debt impact of Covid-19, in determining
instruments, representing the fair value of the investment in the Subsidiary and the
1.78% of the Portfolio, Company's investment valuation
where price quotes policies adopted and fair value disclosures in Note 3.3
are unavailable or deemed and Note 7 respectively for compliance
not to be representative with IFRS as adopted by the EU.
of fair value, the
Investment Pricing
Committee
of the Investment Manager
determines fair value
using valuation techniques
including comparison
to similar instruments for
which market observable
prices exist.
Risk:
The valuation of the
Company's investment at
fair value through profit
and loss is considered
a significant area of our
audit, given that it
represents the majority of
the net assets of
the Company. Inherent in
that valuation is the use
of significant estimates
and judgments
in determining the fair
value of the Subsidiary's
Portfolio.
---------------------------- --------------------------- -----------------------------------------------------------
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
EUR1,937,000, determined with reference to a benchmark of net
assets of EUR96,566,911, of which it represents approximately 2.0%
(2019: 3.0%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding EUR96,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report but does not include the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term
viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the directors' confirmation within the Viability Statement
(above) that they have carried out a robust assessment of the
emerging and principal risks facing the Company, including those
that would threaten its business model, future performance,
solvency or liquidity;
-- the Principal Risks disclosures describing these risks and
explaining how they are being managed or mitigated;
-- the directors' explanation in the Viability Statement (above)
as to how they have assessed the prospects of the Company, over
what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions. These
financial statements have not been prepared on the going concern
basis for the reason set out in Note 2.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and the
directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy; or
-- the section of the annual report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the
directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities .
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
David Alexander
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
2 July 2020
Statement of Comprehensive Income
For the year ended 31 March 2020
Notes Year ended Year ended
31 March 2020 31 March 2019
EUR EUR
Other income 59,376 76,210
--------------- ---------------
Total income 59,376 76,210
--------------- ---------------
Realised foreign exchange gain
on derivatives 1,379,005 5,877,036
Unrealised foreign exchange
loss on derivatives (1,298,746) (3,262,091)
Foreign exchange loss (1,894,578) (273,616)
Net (loss)/gain on investment
at fair value through profit
or loss 7 (18,477,204) 6,431,438
Net realised and unrealised
(loss)/gain (20,291,523) 8,772,767
--------------- ---------------
4(a),
Investment management fees 15 (977,666) (1,241,359)
Directors' fees and expenses 15 (169,913) (179,694)
Administration and professional
fees 4(b) (524,208) (483,479)
Provision for winding-up 14 (172,501) -
--------------- ---------------
Total operating expenses (1,844,288) (1,904,532)
--------------- ---------------
Profit and total comprehensive
(loss)/income for the year (22,076,435) 6,944,445
=============== ===============
Basic and diluted (loss)/earnings
per Ordinary Share (in Euro) 5 (18.5748)c 4.6284c
Basic and diluted (loss)/earnings
per Ordinary Share (in Sterling) 5 (16.2395)p 3.9972p
The accompanying notes form an integral part of these audited
financial statements.
Statement of Financial Position
As at 31 March 2020
Notes 31 March 2020 31 March 2019
EUR EUR
Non-current assets
Investment at fair value through
profit or loss 7 - 156,925,154
Current assets
Investment at fair value through
profit or loss 7 99,134,428 -
Cash and cash equivalents 42,917 1,132,421
Other receivables and prepayments 148,005 93,619
Total current assets 99,325,350 1,226,040
-------------- --------------
Total assets 99,325,350 158,151,194
-------------- --------------
Current liabilities
Other payables and accrued expenses 8 (651,255) (1,388,073)
Derivative liabilities 7, 12 (1,934,683) (635,938)
Provision for winding-up 14 (172,501) -
Total current liabilities (2,758,439) (2,024,011)
-------------- --------------
Net assets 96,566,911 156,127,183
============== ==============
Capital and reserves
Share capital 9 133,877,144 165,054,034
Retained earnings (37,310,233) (8,926,851)
Equity shareholders' funds 96,566,911 156,127,183
============== ==============
Number of Ordinary Shares 9 103,361,401 130,137,627
NAV per Ordinary Share (in Euro) 6 93.4265c 119.9708c
NAV per Ordinary Share (in Sterling) 6 82.6750p 103.6104p
These audited financial statements were approved and authorised
for issue by the Board of Directors on 2 July 2020, and signed on
its behalf by:
Anne Ewing Trudi Clark
Director Director
The accompanying notes form an integral part of these audited
financial statements.
Statement of Changes in Shareholders' Equity
For the year ended 31 March 2020
Retained
Share capital earnings Total
Notes EUR EUR EUR
-------------- ------------- -------------
Opening equity shareholders'
funds at 1 April 2019 165,054,034 (8,926,851) 156,127,183
-------------- ------------- -------------
Total comprehensive loss
for the year - (22,076,435) (22,076,435)
Transactions with owners,
recorded directly to equity
Dividends 10 - (6,306,947) (6,306,947)
Ordinary Shares repurchased
and cancelled 9 (11,444,480) - (11,444,480)
Ordinary Shares repurchased
and held in Treasury 9 (19,732,410) (19,732,410)
-------------- ------------- -------------
Closing equity shareholders'
funds at 31 March 2020 133,877,144 (37,310,233) 96,566,911
============== ============= =============
For the year ended 31 March 2019
Retained
Share capital earnings Total
Notes EUR EUR EUR
-------------- ------------- -------------
Opening equity shareholders'
funds at 1 April 2018 196,663,238 (8,166,570) 188,496,668
-------------- ------------- -------------
Total comprehensive income
for the year - 6,944,445 6,944,445
Transactions with owners,
recorded directly to equity
Dividends 10 - (7,704,726) (7,704,726)
Ordinary Shares repurchased
and cancelled 9 (31,609,204) - (31,609,204)
-------------- ------------- -------------
Closing equity shareholders'
funds at 31 March 2019 165,054,034 (8,926,851) 156,127,183
============== ============= =============
The accompanying notes form an integral part of these audited
financial statements.
Statement of Cash Flows
For the year ended 31 March 2020
Year ended Year ended
31 March 2020 31 March 2019
EUR EUR
Cash flow from operating activities
Total comprehensive (loss) /
income for the year (22,076,435) 6,944,445
Adjustments for:
Net loss / (gain) on investment
at fair value through profit
or loss 18,477,204 (6,431,438)
Unrealised foreign exchange loss
on derivatives 1,298,746 3,262,091
(Increase) / decrease in other
receivables and prepayments (54,387) 7,582
(Decrease) / increase in other
payables and accrued expenses (736,818) 619,108
Proceeds from sale of investment
at fair value through profit
or loss 39,313,522 35,970,000
Increase in provision for winding-up 172,501 -
Net cash from operating activities 36,394,333 40,371,788
Cash flow from financing activities
Ordinary Shares repurchased (31,176,890) (31,609,204)
Dividends paid (6,306,947) (7,704,726)
---------------
Net cash used in financing activities (37,483,837) (39,313,930)
Net (decrease) / increase in
cash and cash equivalents (1,089,504) 1,057,858
Cash and cash equivalents at
start of the year 1,132,421 74,563
Cash and cash equivalents at
end of the year 42,917 1,132,421
=============== ===============
Supplemental disclosure of non-cash
flow information
Interest received in specie 6,449,578 5,992,594
Purchases of investment at fair
value through profit or loss
in specie (6,449,578) (5,992,594)
--------------- ---------------
- -
=============== ===============
The accompanying notes form an integral part of these audited
financial statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2020
1. General Information
The Company is a non-cellular company limited by shares and was
registered in Guernsey under the Companies (Guernsey) Law, 2008 (as
amended) (the "Companies Law") on 3 November 2011 with registered
number 54200 as a closed-ended investment company. The Company's
Ordinary Shares are listed on the FCA's Official List and on the
main market of the London Stock Exchange.
The registered office and principal place of business of the
Company is BNP Paribas House, St Julian's Avenue, St Peter Port,
Guernsey, GY1 1WA.
The Company controls its subsidiary, Alcentra European Floating
Rate Income S.A. (the "Subsidiary"), through a holding of 100% (31
March 2019: 100%) of the Subsidiary's shares. The Subsidiary is
domiciled in Luxembourg and has no subsidiaries. No financial or
other support was provided without a contractual obligation to do
so during the reporting period. As at 31 March 2020, there were no
significant restrictions on the ability of the Subsidiary to
transfer funds to the Company in the form of redemption of the
shares held by the Company.
The Company's investment objective is to provide its
shareholders with regular quarterly dividends and the opportunity
for capital growth by utilising the skills of the Investment
Manager in selecting suitable investments. To pursue its investment
objective, the Company uses net issue proceeds to invest into
Profit Participating Bonds issued by the Subsidiary. The Subsidiary
then uses these proceeds to invest in floating rate, secured loans
or high-yield bonds issued by European or US corporate entities
predominantly rated below investment grade or deemed by the
Investment Manager to be of corresponding credit quality.
The Company expects at least 80% of the Subsidiary's investments
to be debt obligations of corporate entities domiciled or with
significant operations in Western Europe (including the UK).
Investments are expected to be denominated in Euros, Sterling or US
Dollars.
The Company's investment objective and policy was changed post
year end to pursue a strategy of realisation of the Company's
investments and the return of capital to shareholders. Refer to
note 16 for further details.
Alcentra Limited has been appointed by the Company as the
investment manager (the "Investment Manager") and the
administration of the Company is delegated to BNP Paribas
Securities Services S.C.A., Guernsey Branch (the
"Administrator").
2. Going Concern
For the December 2019 quarterly tender, 16.5 million Ordinary
Shares were tendered and repurchased by the Company during the
year. Subsequent to the year-end, for the March 2020 quarterly
tender an additional 11.7 million Ordinary Shares were repurchased
by the Company. These two quarterly tenders represent 23% of the
Ordinary Share capital of the Company. The Directors conducted a
comprehensive review of the outlook for the Company due to the
number of shares that had been repurchased and assessed the
Company's ability to continue as a going concern. The Directors
conducted extensive shareholder consultation and believed that
shareholders would not be supportive of a reconstruction or
reorganisation of the Company and therefore recommend to
shareholders a change in the investment objective and policy in
order to pursue a strategy of realisation of the Subsidiary's
investments and the return of capital to shareholders. Changes to
the investment objective and policy was approved by shareholders at
the Extraordinary General Meeting held on 18 May 2020. Refer to
note 16 for further details.
As a consequence of the above, the Directors consider it is
appropriate to adopt a basis other than going concern in preparing
the financial statements given the fact that all investments held
by the Subsidiary have been fully realised and the Company is
expected to be put into liquidation within 6 months from the date
of approval of these financial statements.
As a result of the application of a basis other than going
concern, costs expected to be paid in relation to the wind-up of
the Company have been provided for. Refer to note 3.11 and 14 for
further detail.
3. Accounting Policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied throughout the year presented.
3.1. Basis of Preparation
(a) Statement of Compliance
The audited financial statements for the year ended 31 March
2020, have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS"). They
give a true and fair view of the Company's affairs and comply with
the Companies Law.
The Directors have determined that the Company continues to meet
the investment entity criteria. Therefore, in accordance with the
investment entity exemption within IFRS 10 - Consolidated Financial
Statements ("IFRS 10"), the Company has prepared individual audited
financial statements and measures its investment in the Subsidiary
at fair value.
IFRS 16 - Leases and IFRIC 23 - Uncertainty over Income Tax
Treatments, became effective on 1 January 2019. As the Company does
not participate in leasing arrangements and the Directors have
determined that, as at 31 March 2020, the Company has no uncertain
tax positions, these standards/interpretations do not have an
impact on the Company's financial statements.
A number of amendments and interpretations to existing standards
have been issued during the year ended 31 March 2020, that are not
relevant to the Company's operations and therefore have no impact
on the Company's financial statements.
The Directors are satisfied that, at the time of approving the
audited financial statements, it is appropriate to adopt a basis
other than going concern.
(b) Basis of Measurement
These audited financial statements have been prepared on a
historical cost basis adjusted to take account of the revaluation
of the investment and derivatives at fair value through profit or
loss.
(c) Critical Accounting Judgements and Key Sources of Estimation
Uncertainty
The preparation of the audited financial statements in
accordance with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods, if the revision affects both current and future
periods.
Information about critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the audited financial statements are set out in the
paragraphs below:
Fair value of financial assets designated at fair value through
profit or loss
Information about significant areas of estimation uncertainty
that have the most significant effect on the amounts recognised in
the audited financial statements are set out in note 3.3 and note
7.
Functional and Presentation Currency
The Company's functional and presentation currency is Euro,
which is the currency of the primary economic environment in which
it operates. The Company's performance is evaluated and its
liquidity is managed in Euro. Euro is therefore considered as the
currency that most faithfully represents the economic effects of
the underlying transactions, events and conditions.
Provision for winding-up
The financial statements have been prepared on a basis other
than going concern and therefore the Company has recognised a
provision in relation to the wind-up costs of the Company, as
detailed in note 14. Note 3.11 outlines the judgements made by the
Board, having liaised with the Investment Manager, in determining
the provision.
(d) New Standards, Amendments and Interpretations issued but not
yet effective for the financial year beginning 1 April 2020 and not
early adopted
Standards, amendments and interpretations to existing standards
that become effective in future accounting periods and have not
been adopted by the Company are as follows:
Effective for annual
periods beginning on
IFRS or after
------------------------------ ---------------------------
IFRS 17 - Insurance contracts 1 January 2023
The Board has undertaken an assessment of the impact of IFRS 17
and concluded that there will be no impact on the Company's
financial statements as the Company does not participate in
insurance contracts in the normal course of its business.
3.2. Foreign Currency Translation
Transactions in currencies other than the functional currency
are recorded using the exchange rate prevailing at the transaction
date. Foreign exchange gains and losses resulting from the
settlement of such transactions, and those from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in profit or loss
in the Statement of Comprehensive Income.
3.3. Investments at Fair Value through Profit or Loss
(a) Recognition and Initial Measurement
Financial assets and liabilities at fair value through profit or
loss are initially measured at fair value and recognised on the
trade date at which the Company becomes a party to the contractual
provisions of the instrument. Other financial assets and
liabilities are recognised on the date they originated.
(b) Classification
The Company measures its investment in the Subsidiary as a
financial asset at fair value through profit or loss. The
underlying investments of the Subsidiary are purchased principally
for capital growth and income generation and the Subsidiary's
portfolio is managed, and performance evaluated, on a fair value
basis in accordance with the Company's documented investment
strategy.
Forward foreign exchange contracts entered into by the Company
are designated as held for trading and classified as fair value
through profit or loss.
The carrying amount of certain financial instruments in the
Company, including cash and cash equivalents approximates fair
value.
(c) Derecognition
Derecognition of financial assets occur when the rights to
receive cash flows from financial instruments expire or are
transferred and substantially all of the risks and rewards of
ownership have been transferred.
On derecognition of a financial asset, the difference between
the weighted average carrying amount of the asset (or the carrying
amount allocated to the portion of the asset derecognised), and
consideration received (including any new asset obtained less any
liability assumed), is recognised in profit or loss.
The Company derecognises a financial liability when its
contractual obligations are discharged, cancelled or expired.
(d) Measurement and Valuation
Investments at fair value through profit or loss is the fair
value of the Subsidiary measured at its NAV, which includes the
fair value of the Subsidiary's investments.
3.4. Realised and Unrealised Gains and Losses
Investment transactions are recorded on the trade date. Realised
gains and losses arising on the disposal of investments are
calculated by reference to the weighted average cost attributable
to those investments and the sale proceeds and are included in
profit or loss in the Statement of Comprehensive Income. All
changes in fair value are recognised in profit or loss in the
Statement of Comprehensive Income as net gain on investment at fair
value through profit or loss.
Forward foreign exchange contracts are recorded on the trade
date. Realised gains and losses arising on the expiry of forward
foreign exchange contracts are included in profit or loss in the
Statement of Comprehensive Income.
Unrealised gains and losses arising on the difference between
the forward rate and the contract rate on the forward foreign
exchange contracts held at the reporting date are also included in
profit or loss in the Statement of Comprehensive Income.
3.5. Income
Income recognised in profit or loss in the Statement of
Comprehensive Income relates to dividend income due to the Company
from the Subsidiary.
3.6. Expenses
All expenses are recognised in profit or loss in the Statement
of Comprehensive Income on an accruals basis. As at 31 March 2020,
costs expected to be paid in relation to the wind-up of the Company
have been provided for. Refer to notes 3.11 and 14 for further
details.
3.7. Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks. Cash equivalents are short term, highly liquid
investments with original maturities of three months or less that
are readily convertible to known amounts of cash and are subject to
an insignificant risk of changes in value.
3.8. Taxation
The Company has applied for and been granted exemption from
liability to income tax in Guernsey under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 as amended by the Director of
Income Tax in Guernsey for the current period. The exemption must
be applied for annually and will be granted, subject to the payment
of an annual fee, which is currently fixed at GBP1,200 per
applicant, provided the Company qualifies under the applicable
legislation for exemption.
It is the intention of the Directors to conduct the affairs of
the Company so as to ensure that it continues to qualify for exempt
company status for the purposes of Guernsey taxation.
3.9. Dividends
In any financial year, the Company will aim to pay regular
quarterly dividends to shareholders subject to the solvency test
prescribed by the Companies Law. It is expected that a distribution
will be made by way of a dividend with respect to each calendar
quarter.
The Directors in their absolute discretion can offer a scrip
dividend alternative to shareholders when a cash dividend is
declared from time to time.
Distributions to the shareholders are recorded through the
Statement of Changes in Shareholders' Equity when they are declared
to shareholders.
3.10. Derivatives
The Company hedges the value of any non-Euro assets held at
Subsidiary level into Euro using spot and forward foreign exchange
contracts rolling on a monthly basis and, in relation thereto, has
entered into a hedging master agreement with BNP Paribas Securities
Services S.C.A. ("BNPP"). Under the same hedging master agreement,
the Company hedges the value of any non-Euro share classes in their
original currency against the Euro on a rolling-monthly basis.
The Company estimates fair values of forward foreign exchange
contracts based on the latest available forward exchange rates
extrapolated to the contract maturity date.
The Company does not apply hedge accounting.
3.11 Provision for winding-up
As the Company's financial statements are prepared on a basis
other than going concern, the Board, in liaison with the Investment
Manager, has recognised a provision for the estimated legal and
liquidation costs which will be incurred on the wind-up of the
Company. Refer to note 14 for further details.
3.12. Share Capital
Ordinary Shares are classified as equity in accordance with IAS
32 - Financial Instruments: Presentation as these instruments
include no contractual obligation to deliver cash.
The cost of the Company repurchasing Ordinary Shares which are
subsequently held in treasury is deducted from equity. Gains or
losses are not recognised on the purchase, sale, issue or
cancellation of treasury shares. Treasury shares do not form part
of the Company's issued share capital.
4. Material Agreements
a) Investment Management Agreement
Under the terms of the Investment Management Agreement dated 9
January 2012 and amended on 21 July 2014, the Company appointed the
Investment Manager to provide management services to the Company.
The Investment Manager is entitled to a management fee which is
calculated and accrued daily at a rate equivalent to 0.70% per
annum based on the NAV of the Company. The management fee is
payable quarterly in arrears by the Company. The Investment Manager
is not entitled to any incentive or performance based fee.
b) Administration and Custodian Agreement
The Company has engaged the services of the Administrator, to
provide administration and custodian services. Under the terms of
the Administration and Custodian Agreement dated 9 January 2012,
the Administrator is entitled to receive an annual administration
fee based on the NAV of the Company on a tiered percentage basis.
There is a minimum fee of GBP113,000 (EUR127,695) per annum for
administration and custodian services.
The Administrator is entitled to receive an annual loan
administration fee based on the NAV of the Company on a tiered
percentage basis. There is a minimum fee of GBP40,000 (EUR45,201)
per annum for loan administration services.
The Company Secretary, BNP Paribas Securities Services S.C.A.,
Guernsey Branch, is entitled to an annual fee of EUR41,000 plus
fees for ad-hoc board meetings and services of EUR3,000 per meeting
and an ad-hoc placing programme fee of GBP600 (EUR678) per
placing.
c) Registrar's Agreement
Computershare Investor Services (Guernsey) Limited are registrar
of the Company, pursuant to the Registrar Agreement dated 29
November 2017 and are entitled to a fixed fee of GBP19,500
(EUR22,036) per annum.
d) Broker Agreements
On 28 June 2016, the Company and J.P Morgan Securities Plc (the
"Broker") entered into an agreement to provide the Company with a
shareholder analysis service and access to their system CBSDirect.
The Broker is paid an annual fee of GBP2,000 (EUR2,260).
The Broker was entitled to charge commission at a rate of 0.2%
of the price paid for shares bought back under the share buyback
programme, which ended in September 2019.
e) Hedging Master Agreement
The Company and the Administrator entered into an International
Forward Foreign Exchange Master Agreements dated 9 January 2012
(the "Hedging Master Agreement"), pursuant to which the parties
enter into foreign exchange transactions with the intention of
hedging against fluctuations in the exchange rate between the Euro
and other currencies. The Hedging Master Agreement is governed by
the laws of England and Wales. Note 7 details the gross derivative
asset and liability position by contract type and the amount for
these derivatives contracts.
5. Basic and Diluted (Loss) / Earnings per Ordinary Share
31 March 31 March 31 March 31 March
2020 2020 2019 2019
In Euro In Sterling(1) In Euro In Sterling(1)
Total comprehensive
(loss) / income
for the year EUR(22,076,435) GBP(19,300,875) EUR6,944,445 GBP5,997,431
Weighted average
number of Ordinary
Shares in issue
during the year 118,851,305 118,851,305 150,039,343 150,039,343
Basic and diluted
(loss) / income
per Ordinary Share (18.5748)c (16.2395)p 4.6284c 3.9972p
6. NAV per Ordinary Share
31 March 31 March 31 March 31 March
2020 2020 2019 2019
In Euro In Sterling(1) In Euro In Sterling(1)
NAV EUR96,566,911 GBP85,453,991 EUR156,127,183 GBP134,836,119
Number of Ordinary
Shares in issue
at year end 103,361,401 103,361,401 130,137,627 130,137,627
NAV per Ordinary
Share 93.4265c 82.6750p 119.9708c 103.6104p
7. Financial Assets at Fair Value through Profit or Loss
The Company's investment at fair value through profit or loss is
the Profit Participating Bonds it holds in the Subsidiary. The fair
value of the Profit Participating Bonds is based on the NAV of the
Subsidiary, which has been prepared in accordance with recognition
and measurement principles of IFRS.
The fair values of the Company's forward foreign exchange
contracts are determined with reference to the forward exchange
rates applicable as at the valuation date.
Fair Value Hierarchy
The Company categorises its financial assets according to the
following fair value hierarchy which reflects the significance of
the inputs used in determining their fair values:
Level 1: Inputs that reflect unadjusted price quotes in active
markets for identical assets or liabilities that the Company has
the ability to access at the measurement date;
Level 2: Inputs that reflect price quotes of similar assets and
liabilities in active markets, and price quotes of identical assets
and liabilities in markets that are considered to be less than
active as well as inputs other than price quotes that are
observable for the asset or liability either directly or
indirectly; and
Level 3: Inputs that are unobservable for the asset or liability
and reflect the Investment Manager's own assumptions.
(1) The EUR/GBP exchange rate as at 31 March 2020 was 1.13005
and GBP/EUR 0.88492. (31 March 2019: EUR/GBP 1.15790 and GBP/EUR
0.86363). The EUR/GBP average exchange rate was 1.143975 and
GBP/EUR average exchange rate was 0.87428. (31 March 2019: average
EUR/GBP 1.14830 and average GBP/EUR 0.87092).
The following table details the Company's fair value
hierarchy.
31 March 2020 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets
-------------------------------- ---------- ------------ ----------- ------------
Designated at fair value through profit
or loss
-------------------------------------------- ------------ ----------- ------------
Investment at fair value
through profit or loss(1) - - 99,134,428 99,134,428
-------------------------------- ---------- ------------ ----------- ------------
Held for trading
-------------------------------- ---------- ------------ ----------- ------------
Derivative liabilities - (1,934,683) - (1,934,683)
-------------------------------- ---------- ------------ ----------- ------------
31 March 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets
Designated at fair value through profit
or loss
-------------------------------------------- ---------- ------------ ------------
Investment at fair value
through profit or loss - - 156,925,154 156,925,154
-------------------------------- ---------- ---------- ------------ ------------
Held for trading
-------------------------------- ---------- ---------- ------------ ------------
Derivative liabilities - (635,938) - (635,938)
-------------------------------- ---------- ---------- ------------ ------------
Reconciliation of the Company's Financial Assets Categorised
within Level 3
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 3
during the reporting year.
31 March 2020 31 March 2019
EUR EUR
Opening balance 156,925,154 186,463,716
Sales (39,313,522) (35,970,000)
Net (loss)/gain on investment at fair
value through profit or loss (18,477,204) 6,431,438
Capitalised interest 6,449,578 5,992,594
Interest received in specie (6,449,578) (5,992,594)
Closing balance(1) 99,134,428 156,925,154
============== ==============
During the years ended 31 March 2020 and 31 March 2019, there
were no reclassifications between levels of the fair value
hierarchy.
As at 31 March 2020, accumulated interest of EUR6,449,578 (31
March 2019: EUR5,992,594) was due to the Company by the Subsidiary.
On 6 September 2019, the Subsidiary elected to pay the interest due
to the Company by way of the issue and allocation to the Company of
new Profit Participating Bonds for which no cash payment was
required.
(1) Below details the Level of the investments held by the
Subsidiary
Company's Investment in the Subsidiary
The NAV of the Subsidiary predominantly comprises the fair
values of the investment portfolio of the Subsidiary consisting of
Level 1, Level 2 and Level 3 investments and other financial assets
and liabilities at carrying value, which together form the NAV of
the Subsidiary.
The investments in the Subsidiary's portfolio are valued as
follows:
Fair values of debt instruments are initially based on price
quotes, where available. Price quotes are sourced from the
Company's approved pricing providers. The approved pricing
providers source price quotes from brokers/market makers and
determine an average bid price (mid-price in the published NAV)
based on the quotes obtained, after adjusting for outliers.
Where price quotes are unavailable, the Investment Pricing
Committee of the Investment Manager determines fair value using
valuation techniques. Valuation techniques used include comparison
to similar instruments for which market observable prices exist.
Assumptions and inputs used in the valuation technique include
interest rates and credit spreads used in estimating discount
rates. The Investment Pricing Committee has applied judgment and
estimation and used significant unobservable inputs in selecting
the appropriate valuation technique used, consideration of
identical or similar instruments, and selection of appropriate
discount rates.
As at 31 March 2020 and 31 March 2019, the fair value
measurement of the Profit Participating Bonds is categorised into
Level 3 within the fair value hierarchy. This classification
reflects the Company's ability to redeem its investment in the
Subsidiary on the reported date at the NAV and whether adjustments
to the NAV are required to reflect the inherent uncertainty in the
timing and range of possible outcomes of any realisation between
the NAV and the ultimate recoverable amount. The fair value level
of the investment in the Subsidiary reflects management's
consideration that this investment is not readily tradable.
Management has considered that there are no reasonably possible
alternatives in determining the fair value of the Subsidiary.
The fair value of the Subsidiary is predominantly influenced by
the fair value determination of the underlying debt investments
held by the Subsidiary. The Company recognises any transfers
between levels of the fair value hierarchy as at the end of the
reporting period during which the change occurred.
The following table provides a reconciliation of the Company's
investment in the Subsidiary measured at fair value:
31 March 31 March 2019
2020
EUR EUR
Subsidiary's investments at fair value
through profit and loss 76,329,318 145,364,539
Subsidiary's net current assets 22,805,110 11,560,615
Closing balance 99,134,428 156,925,154
=========== ==============
As at 31 March 2020, the net loss on the Company's investment in
the Subsidiary included in the Statement of Comprehensive Income
amounted to EUR18,477,204 (31 March 2019: a gain of EUR6,431,438),
the breakdown of the (loss) / gain is detailed in the table
below:
31 March 2020 31 March 2019
EUR EUR
Investment income 6,583,254 8,184,547
Realised loss on investments at fair value
through profit or loss (6,752,240) (2,723,421)
Unrealised (loss) / gain on investments
at fair value through profit or loss (17,957,651) 1,166,187
Dividend paid to the Company (59,376) (76,210)
Expenses (175,530) (119,665)
Provision for winding-up (115,661) -
Total (18,477,204) 6,431,438
=============== ==============
Subsidiary Financial Assets and Liabilities Designated at Fair
Value through Profit or Loss
The following table details the investment holding of the
Subsidiary, categorising these assets by level, according to the
fair value hierarchy. The disclosures have been included to provide
an insight to shareholders of the asset class mix held by the
Subsidiary.
31 March 2020 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets
Interest bearing securities
Corporate bonds and debt instruments - 54,049,594 22,279,724(1) 76,329,318
Total - 54,049,594 22,279,724 76,329,318
========= ============ ============== ============
31 March 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets
Interest bearing securities
Corporate bonds and debt instruments - 130,263,154 15,101,385(1) 145,364,539
--------- ------------ -------------- ------------
Total - 130,263,154 15,101,385 145,364,539
========= ============ ============== ============
(1) As at 31 March 2020, four Level 3 investments with a value
of EUR1,360,684 were priced by the Alcentra Pricing Committee,
while the other Level 3 investments with a value of EUR20,919,040
had one broker quote (31 March 2019: four Level 3 investments with
a value of EUR2,816,512 were priced by the Alcentra Pricing
Committee, while the other Level 3 investments with a value of
EUR12,284,873 had one broker quote)
8. Other Payables and Accrued Expenses
31 March 2020 31 March
2019
EUR EUR
Investment management fees 546,196 282,520
Administration and company secretarial
fees 13,102 24,582
Audit fees 61,927 63,420
Other expenses 2,032 6,571
Share buybacks - 974,559
Loan administration fees 3,462 9,119
Printing fees 8,020 8,177
Director fees and expenses 12,828 17,185
Registrar fees 3,688 1,940
Total 651,255 1,388,073
============== ==========
The Company has financial risk management policies in place to
ensure that all payables are paid within the credit time frame. The
Directors considers that the carrying amount of all payables
approximates to their fair value.
9. Share Capital
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares with or without a par value,
which upon issue, the Directors may designate as: (a) Ordinary
Shares; (b) B Shares; (c) C Shares, in each case of such classes
and denominated in such currencies as the Directors may determine.
Since inception of the Company, no B or C shares have been
issued.
Since inception of the Company, only Sterling Ordinary Shares
have been issued, but the Company has the authority to issue Euro
Ordinary Shares.
The Company had issued and fully paid up share capital as
follows:
31 March 2020 31 March 2019
Sterling Ordinary Sterling Ordinary
Shares Shares
Ordinary Shares of no par value
Issued and fully paid 103,361,401 130,137,627
------------------ ------------------
Rights attached to Ordinary Shares
The Company's share capital may be denominated in Sterling and
Euro. At any general meeting of the Company each Euro share carries
one vote and each Sterling share carries 1.2 votes. The shares also
carry rights to receive all income and capital available for
distribution by the Company.
Share Buybacks
At the AGM held on 26 September 2019 the Directors were granted
authority to repurchase 18,295,003 Ordinary Shares for cancellation
or to be held as treasury shares. This authority will expire at the
next AGM which will be held on 24 September 2020.
During the year ended 31 March 2020, the Company used the
authorities detailed above to repurchase and cancel 10,266,098
Ordinary Shares in the market at a total cost of EUR11,444,481
(GBP10,119,819). There have been no share buy backs since 26
September 2019, the date when the quarterly tender offer was
approved by shareholders.
Quarterly Tender Offer
The ordinary resolution proposing the quarterly tender offer was
approved by shareholders at the AGM on 26 September 2019.
The details of the quarterly tender offer are as follows:
-- On a quarterly basis (the last day of March, June, September,
and December each year), ordinary shareholders will have the option
to redeem up to 20% of their holding of ordinary shares (the "Basic
Entitlement") as at the relevant record date (a "Quarterly Tender
Offer").
-- Quarterly Tender Offers will be made at a 1.5% discount to
the NAV calculated on the final business day in each relevant
quarter, or such other date as the Board in its absolute discretion
may determine (the "Calculation Date"), such that ongoing
shareholders are not disadvantaged by shareholders electing to
redeem.
-- No later than 30 business days prior to each quarter end,
shareholders will be able to submit their redemption requests. The
Company's NAV and therefore the Quarterly Tender Offer price will
be struck on the last business day of each quarter. The Company
will aim to settle each quarterly redemption 30 business days
following a quarter end, however this may be delayed due to any
abnormal market conditions arising at the relevant time impacting
the underlying portfolio.
-- Shareholders may request to redeem Ordinary Shares in excess
of their Basic Entitlement and such requests will be satisfied on a
pro rata basis to the extent that other shareholders do not request
to redeem any or all of their Basic Entitlement.
-- In each year, no more than 50% of the Ordinary Shares in
issue (excluding Ordinary Shares held in treasury) may be
redeemed.
-- Ordinary Shares purchased will be held by the Company in
treasury and will be available for reissue.
The Quarterly Tender Offer must comply with the Guernsey Law
solvency requirements and also the realisation condition.
The first Quarterly Tender Offer took place for the quarter
ending 31 December 2019 and 16,510,128 Ordinary Shares were
repurchased and are being held in treasury as at 31 March 2020.
Refer to note 16 for details on the tender for the quarter ended 31
March 2020. Subsequently, the Board has suspended further quarterly
tender offers.
Significant Share Movements
31 March 2020 31 March 2019
Number EUR Number EUR
Balance at start of the
year 130,137,627 165,054,034 158,333,471 196,663,238
Ordinary Shares repurchased
and cancelled during the
year (10,266,098) (11,444,480) (28,195,844) (31,609,204)
Ordinary Shares repurchased
and held in treasury during
the year (16,510,128) (19,732,410) - -
--------------- --------------- --------------- ---------------
Balance at end of the
year 103,361,401 133,877,144 130,137,627 165,054,034
=============== =============== =============== ===============
The 103,361,401 Ordinary Shares in issue at 31 March 2020 (31
March 2019: 130,137,627 Ordinary Shares in issue) does not include
the 16,510,128 shares held in treasury (31 March 2019: nil).
10. Dividends
In any financial year, the Company will aim to pay regular
quarterly dividends to shareholders subject to the solvency test
prescribed by the Companies Law. It is expected that a distribution
will be made by way of a dividend with respect to each calendar
quarter. Since the realisation of the investments post year end, no
further dividends will be declared or paid.
The Company has declared and paid the following dividends to its
shareholders:
Year ended Date declared Payment date Amount per Amount
31 March 2020 share
1 January 2019
to
31 March 2019 12 April 2019 17 May 2019 1.13p EUR1,695,150
1 April 2019
to
30 June 2019 11 July 2019 9 August 2019 1.12p EUR1,557,408
1 July 2019
to
30 September 10 October 8 November
2019 2019 2019 1.17p EUR1,619,699
1 October 2019
to
31 December 13 January 7 February
2019 2020 2020 1.17p EUR1,434,690
Total EUR6,306,947
===============
The dividend for the period 1 January 2020 to 31 March 2020 had
an ex-dividend date after the year end and is detailed in note
16.
Year ended Date declared Payment date Amount per Amount
31 March 2019 share
1 January 2018
to 12 April
31 March 2018 2018 11 May 2018 1.08p EUR1,966,016
1 April 2018
to
30 June 2018 12 July 2018 10 August 2018 1.10p EUR1,943,481
1 July 2018
to
30 September 11 October 9 November
2018 2018 2018 1.12p EUR1,910,928
1 October 2018
to
31 December 10 January 8 February
2018 2019 2019 1.16p EUR1,884,301
Total EUR7,704,726
===============
11. Reconciliation of NAV to Published NAV
31 March 2020 31 March 2019
NAV NAV per NAV NAV per share
share
EUR EUR EUR EUR
Published NAV 98,920,266 0.9570 156,785,157 1.2048
Impact of fair value adjustment
on investments held by
the Subsidiary(1) (2,065,193) (0.0200) (657,273) (0.0051)
Accrual adjustment(2) - - (701) -
Provision for winding
up(3) (288,162) (0.0028) - -
NAV attributable to shareholders 96,566,911 0.9342 156,127,183 1.1997
================ ============ ============= ==============
(1) The investments held by the Subsidiary have been valued at
mid-price in the published NAV and at bid price in the audited
financial statements, which is consistent with the basis used in
the prior year.
(2) The published NAV was calculated as at 29 March 2019, which
did not take into consideration expense accruals for 30 and 31
March 2019 and changes in exchange rates from 29 to 31 March
2019.
(3) EUR115,660 of the provision for winding up relates to the
Subsidiary.
12. Risk Management Policies and Procedures
This note presents information about the Company's exposure to
risks. The majority of the Company's assets are invested in the
Subsidiary through Profit Participating Bonds , therefore the
majority of the risks that the Company is exposed to are borne out
of the indirect exposure to the risks of the underlying portfolio
held at the Subsidiary level.
The Board of Directors has established procedures for monitoring
and controlling risk. The Company has investment guidelines that
set out its overall business strategies, its tolerance for risk and
its general risk management philosophy.
In addition, the Investment Manager monitors and measures the
overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities.
COVID - 19
The COVID-19 outbreak has caused extensive disruption to
businesses and economic activities globally. The uncertainties over
the emergence and spread of COVID-19 have caused market volatility
on a global scale. At the year-end the main risk for the Company as
a result of the impact of COVID-19 related to potential defaults
within the Subsidiary's portfolio. As explained in note 16, the
Subsidiary's portfolio was disposed in full after the year-end and
prior to the issuance of these financial statements, at a value in
excess of the portfolio's fair value at 31 March 2020. As such, the
risks arising as a result of COVID-19 are considered to have been
fully mitigated, while the pricing risk associated with COVID-19 is
considered to be captured within the range of sensitivities
detailed below.
Market risk
The fair value of the Company's investment into the Subsidiary
may fluctuate due to changes in market prices of the underlying
portfolio of investments held by the Subsidiary. Market risk
comprises market price risk, currency risk and interest rate risk.
The Investment Manager moderates the risk through a careful
selection of investments within specified limits. The maximum risk
resulting from financial assets is determined by the fair value of
the financial assets. The Company's overall market position at
Company and Subsidiary level is monitored by the Investment Manager
and is reviewed by the Board of Directors on an ongoing basis. The
main market risk measures used by the Investment Manager are
rolling 12 month volatility. Volatility is used as a standard
market risk metric versus the Company's benchmark volatility.
Market price risk
The Company's investment at fair value through profit or loss is
based on the NAV of the Subsidiary which is susceptible to the
market price risk arising from uncertainties about future prices of
the underlying portfolio of investments held by the Subsidiary.
The Board of Directors manages the risks inherent in the
investment by ensuring full and timely reporting of the relevant
information from the Investment Manager. Investment performance is
reviewed at each Board meeting. The Board of Directors monitor the
Investment Manager's compliance with the Company's objectives. At
31 March 2020, the overall market exposure of the Company is
equivalent to the fair value of the underlying portfolio of
investments held by the Subsidiary was EUR76,329,318 (31 March
2019: EUR145,364,539).
Market price risk sensitivity
The following table illustrates the sensitivity of the return
for the year and the Company's net assets to an increase or
decrease of 5% in the fair values of the underlying portfolio of
investments held by the Subsidiary at the reporting date. The
Investment Manager acknowledge the situation changed close to 31
March 2020 due to COVID-19, however a change of 5% is still
considered to be reasonable based on the observation of current
market conditions.
31 March 2020 31 March 2019
Increase Increase
in fair Decrease in fair Decrease
value in fair value value in fair value
EUR EUR EUR EUR
Profit/(loss)
for the
financial
year 3,816,466 (3,816,466) 7,268,227 (7,268,227)
--------------------------------------------------- ----------------------------------------------------- --------------------------------------------------- ----------------------------------------------------
Net assets 3,816,466 (3,816,466) 7,268,227 (7,268,227)
=================================================== ===================================================== =================================================== ====================================================
Currency risk
The functional and presentation currency of the Company and its
Subsidiary is Euro. The Company invests in its Subsidiary which in
turn invests in financial instruments and enters into transactions
that are denominated in currencies other than its functional
currency, primarily in US Dollars and Sterling. Consequently, the
Company is exposed to risk that the exchange rate of its functional
currency relative to other foreign currencies may change in a
manner that has an adverse effect on the fair value or future cash
flows of that portion of the Company's financial assets or
liabilities.
The Investment Manager monitors the exposure to foreign
currencies and reports to the Board of Directors on a regular
basis. The Investment Manager measures the risk of the foreign
currency exposure by considering the effect on the NAV and income
of a movement in the rates of exchange to which the assets,
liabilities, income and expenses are exposed.
The Company also enters into forward foreign currency contracts
to manage its exposure to currency risk due to the assets being in
Euro and the issuance of shares in Sterling and its exposure to
non-Euro investments held in the portfolio of the Subsidiary.
The Investment Manager, acting on behalf of the Company, seeks
to engage in currency hedging contracts such as forward currency
exchange contracts being available in a timely manner and on terms
acceptable to them, in their sole and absolute discretion. The
primary aim of the Investment Manager's use of hedging is to
protect the Sterling shareholders return.
As at 31 March 2020, the Company had the following open forward
foreign exchange contracts:
Buy/Sell Fair Value / Settlement
Currency Bought Sold EUR Equivalent Date
EUR/GBP 51,354,359 45,560,000 (124,602) 6 April 2020
EUR/USD 3,858,229 4,300,000 (60,858) 6 April 2020
USD/EUR 2,100,000 1,852,991 60,979 6 April 2020
GBP/EUR 111,050,000 127,287,309 (1,810,202) 6 April 2020
Total (1,934,683)
================
As at 31 March 2019, the Company had the following open forward
foreign exchange contracts:
Buy/Sell Fair Value / Settlement
Currency Bought Sold EUR Equivalent Date
EUR/CHF 1,342,762 1,520,000 (17,764) 4 April 2019
EUR /GBP 39,140,693 33,650,000 182,234 4 April 2019
EUR/USD 9,650,606 10,960,000 (113,587) 4 April 2019
GBP/EUR 142,450,000 165,609,135 (686,821) 4 April 2019
Total (635,938)
----------------
The tables below detail the carrying amounts of the Company's
financial assets and liabilities that have foreign currency
exposure:
31 March GBP EUR USD Total
2020
EUR EUR EUR EUR
Investment
in
Subsidiary
at fair
value
through
profit or
loss - 99,134,428 - 99,134,428
Other
receivables
and
prepayments 12,419 135,586 - 148,005
Derivative
liabilities - (1,934,683) - (1,934,683)
Cash and
cash
equivalents 32,709 11,168 (960) 42,917
Other
payables
and accrued
expenses (92,026) (559,229) - (651,255)
Provision
for winding
up (172,501) - - (172,501)
Total net
foreign (219,399) 96,787,270 (960) 96,566,911
currency
exposure
Forward 75,932,950 (73,927,713) (2,005,237) -
hedging
--------------------------------------------------- --------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------
Exposure net
of 75,713,551 22,859,557 (2,006,197) 96,566,911
forward
hedging
=================================================== =================================================== ==================================================== ===================================================
31 March GBP EUR USD CHF Total
2019
EUR EUR EUR EUR EUR
Investment
in
Subsidiary
at fair
value
through
profit or
loss - 156,925,154 - - 156,925,154
Other
receivables
and
prepayments 17,409 76,210 - - 93,619
Derivative
assets - (635,938) - - (635,938)
Cash and
cash
equivalents 6,363 1,126,047 11 - 1,132,421
Other
payables
and accrued
expenses (1,078,487) (309,586) - - (1,388,073)
Total net
foreign (1,054,715) 157,181,887 11 - 156,127,183
currency
exposure
Forward 126,468,442 (115,475,074) (9,650,606) (1,342,762) -
hedging
---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ----------------------------------------------------
Exposure net
of 125,413,727 41,706,813 (9,650,595) (1,342,762) 156,127,183
forward
hedging
==================================================== ==================================================== ==================================================== ==================================================== ====================================================
The tables below detail the carrying amounts of the Subsidiary's
financial assets and liabilities (excluding the value of Profit
Participating Bonds payable to the Company) that have foreign
currency exposure:
31 March GBP EUR USD Total
2020
EUR EUR EUR EUR
Investments
designated
at fair
value
through
profit or
loss 21,922,526 53,677,597 729,195 76,329,318
Interest - 311,939 - 311,939
receivable
Trade and 2,604 20,522,691 5,497 20,530,792
other
receivables
Cash and 860,860 2,673,427 1,143,964 4,678,251
cash
equivalents
Trade and - (2,715,873) - (2,715,873)
other
payables
Total net
foreign
currency
exposure 22,785,990 74,469,781 1,878,656 99,134,427
=================================================== =================================================== ================================================ ===================================================
31 March GBP EUR USD CHF Total
2019
EUR EUR EUR EUR EUR
Investments
designated
at fair
value
through
profit or
loss 31,302,574 103,325,263 9,407,557 1,329,145 145,364,539
Interest
receivable 142,964 705,949 66,908 - 915,821
Trade and
other
receivables 64,536 12,561,980 5,374 - 12,631,890
Cash and
cash
equivalents 2,310,990 4,767,230 276,861 28,790 7,383,871
Trade and
other
payables (2,304,228) (13,516,329) - - (15,820,557)
Total net
foreign
currency
exposure 31,516,836 107,844,093 9,756,700 1,357,935 150,475,564
=================================================== ==================================================== ================================================== ================================================== ====================================================
Currency sensitivity analysis
Should the value of the Euro against Sterling and US Dollar
increase or decrease by 10% with all other variables held constant,
the increase and decrease of the comprehensive income and net
assets of the Company would be as follows:
31 March 2020 31 March 2019
Increase Decrease Increase Decrease
EUR EUR EUR EUR
21,339,2
GBP 19,367,553 (16,037,117) 11 (19,653,085)
USD 465,704 (710,387) 859,945 (1,093,535)
CHF - - 118,338 (153,756)
Should the value of the Euro against Sterling and US Dollar
increase or decrease by 10% with all other variables held constant,
the increase and decrease of the comprehensive income and net
assets of the Subsidiary would be as follows:
31 March 2020 31 March 2019
Increase Decrease Increase Decrease
EUR EUR EUR EUR
(3,151,68
GBP (2,278,599) 2,278,599 4) 3,151,684
USD (187,866) 187,866 (975,670) 975,670
CHF - - (135,794) 135,794
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments and related income from the cash and cash equivalents
will fluctuate due to changes in market interest rates.
The Company's exposure to interest rate risk relates to
underlying portfolio of investments held by the Subsidiary and cash
and cash equivalents held at both Company and Subsidiary level. The
interest rate exposures at Subsidiary level affect the fair value
of the investment designated as fair value through profit or loss.
As a result the Company is subject to significant amounts of risk
due to fluctuations in the prevailing levels of market interest
rates.
Financial instruments at variable rates expose the Company to
cash flow risk. Financial instruments at fixed rates expose the
Company to fair value interest rate risk.
The table below summarises the Company's exposure to interest
rate risks either directly or through its investment in the
Subsidiary. It includes all of the Company's and the Subsidiary's
assets and liabilities that are interest rate sensitive.
31 March 2020 31 March 2019
EUR EUR
Investment in underlying portfolio
of investments at fair value through
profit or loss 76,329,318 145,364,539
Cash and cash equivalents in Company
and Subsidiary 4,721,168 8,516,292
-------------- --------------
Total 81,050,486 153,880,831
-------------- --------------
Total interest sensitivity gap 81,050,486 153,880,831
-------------- --------------
If interest rates had changed by 100 basis points, with all
other variables remaining constant, the effect on the net profit
and equity would have been as shown on the table below:
31 March 2020 31 March 2019
EUR EUR
Increase of 100 basis points 942,050 1,498,456
Decrease of 100 basis points (270,723) (402,769)
These figures have been calculated after considering the
potential interest rate floors and caps on investments held in the
Subsidiary's portfolio.
As at 31 March 2020, there were no instruments that were limited
by an interest rate cap and that the current spread across the
portfolio is at such level that a 1% decrease in interest rates
will not breach any floors.
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due.
The Company's main credit risk exposure is indirect via its
investment in the Subsidiary since the Subsidiary holds debt in its
portfolio. Credit risk in respect of other financial assets
comprises cash and cash equivalents and dividend receivable.
Counterparty default in an investment or other financial asset at
the Subsidiary level would impact fair value of the investment
designated at fair value through profit or loss at Company level.
The total exposure to credit risk arises from default of the
counterparty, and therefore the carrying amounts of the underlying
portfolio of investments held by the Subsidiary and other financial
assets best represent the maximum credit risk exposure at the
year-end date. As at 31 March 2020, the maximum credit risk
exposure was EUR101,904,367 (31 March 2019: EUR167,445,951).
The Investment Manager has adopted procedures to reduce credit
risk exposure by conducting credit analysis of the counterparties
in the portfolio of the Subsidiary, their business and reputation
which is monitored on an ongoing basis.
The Company and Subsidiary maintain cash and cash equivalents at
BNPP, which is subject to the Company's credit risk monitoring
policies as mentioned above. The counterparty to the foreign
exchange contracts held by the Company and Subsidiary is BNPP.
BNP Paribas Securities Services S.C.A., Guernsey Branch, as
Custodian, is a branch of BNPP, whose credit ratings are A+ with
Standard & Poor's, Aa3 with Moody's and AA- with Fitch's.
Credit risk arising on debt securities is constantly monitored
by the Investment Manager.
Counterparty risk
Counterparty risk is defined as risk that trading or depositary
counterparties were to default on their obligation.
All loan counterparties are approved by the Investment Manager
and all trading counterparties are approved and monitored through
monthly broker exposure reports and approved broker lists by the
Investment Manager.
Portfolio credit risk
Credit risk management within the Subsidiary's portfolio is the
responsibility of the Investment Manager. The portfolio managers at
the Investment Manager are supported by a fundamental approach to
credit analysis whereby every asset within each portfolio is
regularly monitored by the credit analysis. Quarterly Performance
Reviews are performed for each investee company in the portfolio of
the Subsidiary by the Investment Manager.
Liquidity risk
Risk that the Company cannot meet cash and collateral
obligations at reasonable cost for expected and unexpected needs
without adversely affecting daily operations.
Liquidity risk in respect of other financial liabilities of the
Company relates to balances due to counterparties. As at 31 March
2020, there was sufficient liquidity in the form of cash and cash
equivalents to satisfy the Company's obligations. The Company also
has the ability to also sell bonds in the Subsidiary if additional
liquidity is required. The Subsidiary had a working capital of
EUR99,296,081 as at 31 March 2020 and the whole investment
portfolio held by the Subsidiary was sold post year end.
The Company expects its liabilities to be settled within the
next year.
As at 31 March 2020, each asset was given an internal score by
the Investment Manager referring to liquidity (except for the
Company's investment in the Subsidiary).
Liquidity risk is measured and monitored by the Investment
Manager. The Investment Manager assesses the liquidity of positions
within the portfolio of the Subsidiary through their daily
interactions with loan market dealers.
Operational risk
Operational risk is defined as risk of loss resulting from
people, system, inadequate or failed internal processes or external
events. Operational risk may arise from errors in transaction
processing, breaches of internal control systems and internal or
external frauds, damage to physical assets and/or business
disruption due to systems failures or other events.
The Company's objective is to manage operational risk so as to
balance limiting of financial losses and damage to its reputation
with achieving its investment objective of generating returns to
investors.
The Investment Manager works with the Directors to identify the
risks facing the Company. The key risks are documented and updated
in the Risk Matrix and by the Investment Manager.
The primary responsibility for the development and
implementation of controls over operational risk rests with the
Board of Directors.
The responsibility is supported by the development of overall
standards for the management of operational risk, which encompasses
the controls and processes at the service providers and the
establishment of service levels with the service providers.
The Directors' assessment over the adequacy of the controls and
processes in place at the service providers with respect to
operational risk is carried out via regular discussions with the
service providers and review of the service providers' ISAE 3402
reports on internal controls (or equivalent) if available.
Capital management policies and procedures
During the year, the Company's capital management objectives
were:
-- to ensure that the Company will be able to continue as a going concern; and
-- to maximise the income and capital return to its equity
shareholders through an appropriate balance of equity capital and
long-term debt.
During the year, in accordance with the Company's investment
policy, the Company's principal use of cash was to fund investment
in the Subsidiary, as well as ongoing operational expenses and
payment of dividends and other distributions to shareholders in
accordance with the Company's dividend policies and share
repurchase.
The Directors, with the assistance of the Investment Manager
monitor and review the broad structure of the Company's capital on
an ongoing basis.
Following the approval of shareholders at the EGM held on 18 May
2020, the Company's capital management objectives changed to a
managed wind-down in which investments will be realised in a manner
that achieves a balance between a timely return of cash to
shareholders and a favourable realisation value with regards to
cost efficiency, working capital requirements and current market
conditions. The Company will cease to make new investments or to
undertake capital expenditure except to protect or enhance the
value of any existing investments. The investment portfolio held by
the Subsidiary was sold in full post year end.
The Company has no imposed capital requirements.
13. Operating Segments
The Chief Operating Decision Makers of the Company are the Board
of Directors. The Directors are of the opinion that the Company is
engaged in a single segment of business, being investing, via its
Subsidiary, in investments in floating rate, secured loans or
high-yield bonds. Segment information is measured on the same basis
as those used in the preparation of the Company's audited financial
statements with the exception of the valuation of financial
instruments. For the purpose of segment reporting, at the
Subsidiary level, financial instruments are measured in accordance
with the method set out in the Company's prospectus, this being the
mid-price of the securities as at the valuation day.
The Board of Directors reviews internal management reports on a
quarterly basis. The Investment Manager, together with the
Administrator and the Company Secretary, ensure that all Directors
receive all relevant information in a timely manner.
The key measurement of performance used by the Board to assess
the Company's performance and to allocate resources is the movement
in the NAV which is prepared on a daily basis.
The majority of the Subsidiary's assets are held in Europe and
are held in Sterling, Euros and US Dollars.
A detailed analysis of the operating segment with respect to
geographical disclosures and significant customers is included in
the Investment Manager's Report and Directors' Report
respectively.
The Company has two shareholder ("Weiss Asset Management LP" and
"FIL Limited") with a holding of greater than 10% as at 31 March
2020 (31 March 2019: ("CCLA Investment Management Limited
(UK)").
14. Provision for winding-up
A provision of EUR172,501 has been recognised in the Statement
of Comprehensive Income in relation to the one-off liquidation
costs which will be incurred on the wind up of the Company. The
liquidation costs include liquidation, legal, registrar and
professional fees to be incurred on liquidation.
The provision in the audited financial statements for the year
ended 31 March 2020 may differ from the actual amount incurred on
ultimate wind-up of the Company.
The provision was not included in the 31 March 2020 published
NAV and a reconciliation between NAV attributable to shareholders
and the published NAV can be found in note 11.
15. Related Party Transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
Total investment management fees for the year amounted to
EUR977,666 (31 March 2019: EUR1,241,359), with outstanding fees of
EUR546,196 at 31 March 2020 (31 March 2019: EUR282,520).
The table below provides details of the Ordinary Shares held in
the Company by the Directors:
31 March 2020 31 March 2019
Ian Fitzgerald 15,000 15,000
Anne Ewing (together with her
spouse) 5,000 5,000
Trudi Clark 7,500 7,500
The Directors of the Company are remunerated per annum as
follows:
Chairman and Chairman of the Risk Committee - GBP52,500.
Chairman of the Audit Committee and the Management Engagement
Committee - GBP42,000.
Senior Director and Chairman of the Remuneration and Nomination
Committee - GBP40,000.
The total Directors' fees and expenses for the year amounted to
EUR157,085 (31 March 2019: EUR179,694), with outstanding fees of
EUR12,828 (31 March 2019: EUR17,185) being due to the Directors at
31 March 2020.
16. Events after the Reporting Date
On 14 April 2020, the Company declared a dividend of 1.00p per
Ordinary Share, covering the period 1 January 2020 to 31 March
2020. This dividend was paid to the shareholders on 15 May
2020.
On 14 April 2020, the Company announced that it had accepted in
full the tender requests in respect of the March 2020 Tender and
would repurchase 11,683,734 Ordinary Shares at GBP 0.8342 per Share
(the "Tender Price"). The Company paid GBP 0.8335 per Ordinary
Share repurchased, this being the Tender Price less the expenses of
the quarterly tender offer. Redemptions were settled on 15 May
2020.
On 18 May 2020, the Board announced that all of the resolutions
proposed at the Extraordinary General Meeting had been passed.
Consequently, the Company is undergoing a managed wind-down. The
Company will cease to make new investments or to undertake capital
expenditure except to protect or enhance the value of any existing
investments. Since the year end, all of the investments in the
Subsidiary have has been sold raising proceeds of EUR82,980,690,
EUR 6,651,372 more than the carrying value of the Subsidiary's
portfolio at 31 March 2020. Cash received by the Company as part of
the realisation process prior to its distribution to shareholders
will be held by the Company as cash on deposit and/or as cash
equivalents.
There were no other events which occurred subsequent to the
year-end until the date of approval of the financial statements,
which would have a material impact on the financial statements of
the Company as at 31 March 2020.
Alternative Performance Measures (unaudited)
NAV Total Return
NAV total return per share is calculated as the movement in the
NAV per share plus the total dividends paid per share during the
period, with such dividends paid being re-invested at NAV, as a
percentage of the NAV per share as at period end.
Total return since inception is for the period 5 March 2012 to
31 March 2020.
Reason for use
To provide transparency in the Company's performance and to help
investors identify and monitor the compounded returns of the
Company.
Recalculation
NAV total return per share has been calculated as follows:
Compounded since inception to: 31 March 2020
GBP
Opening NAV (5 March 2012) 0.9800
Closing NAV (31 March 2020) 0.8469
----------------------------------------------------------- --------------
Change in NAV (0.1331)
----------------------------------------------------------- --------------
Dividends paid (5 March 2012 to 31 March 2020) 0.3854
----------------------------------------------------------- --------------
NAV total return per share (change in NAV and dividends
paid) 0.2523
----------------------------------------------------------- --------------
Impact of dividend re-investment (0.33%)
----------------------------------------------------------- --------------
NAV total return per share 24.90%
Annualised return
The annualised return is calculated as the geometric average
amount of money earned each year over the total period of time from
inception.
Reason for use
To provide transparency in the Company's performance and to help
investors identify and monitor their earnings over a period of time
if the annual return was compounded.
Discount/Premium to NAV
This figure is calculated in accordance with the AIC formula
which includes current financial year revenue. The Company's
discount / premium to NAV is calculated by expressing the
difference between the share price (closing price) and the NAV per
share on the same day compared to the NAV per share on the same
day.
Reason for use
The discount or premium per Ordinary share is a key indicator of
the discrepancy between the market value and the intrinsic value of
the Company.
Recalculation
At 31 March 2020, the Company's Ordinary shares traded at
GBP0.7700 on the LSE (31 March 2019: GBP0.9701). The Ordinary
shares traded at a discount of 6.86% (31 March 2019: discount of
6.37%) to the NAV per Ordinary share of GBP0.8268 (31 Mach 2019:
GBP1.0361).
Dividend Yield
Dividend yield is calculated as total dividends paid during the
financial period divided by the share price as at 31 March
2020.
Reason for use
Annualised dividend yield is calculated to measure the Company's
distribution of dividends to the Company's Ordinary Shareholders
relative to share price to allow comparability to other companies
in the market.
Recalculation
Annualised dividend yield is calculated as follows:
31 March 2020
------------------------------------------------------- --------------
Dividends declared and paid for the quarter ended 31
March 2019 (pence per share) 1.13
Dividends declared and paid for the quarter ended 30
June 2019 (pence per share) 1.12
Dividends declared and paid for the quarter ended 30
September 2019 (pence per share) 1.17
Dividends declared and paid for the quarter ended 31
December 2019 (pence per share) 1.17
------------------------------------------------------- --------------
Total dividends declared in respect of the year ended
31 March 2020 4.59
Share price as at 31 March 2020 GBP0.7700
Dividend Yield 5.96%
------------------------------------------------------- --------------
31 March
2019
------------------------------------------------------- ----------
Dividends declared and paid for the quarter ended 31
March 2018 (pence per share) 1.08
Dividends declared and paid for the quarter ended 30
June 2018 (pence per share) 1.10
Dividends declared and paid for the quarter ended 30
September 2018 (pence per share) 1.12
Dividends declared and paid for the quarter ended 31
December 2018 (pence per share) 1.16
------------------------------------------------------- ----------
Total dividends declared in respect of the year ended
31 March 2019 4.46
Share price as at 31 March 2019 GBP0.9701
Dividend Yield 4.60%
------------------------------------------------------- ----------
Ongoing charges
Ongoing charges reflect those expenses of a type which are
likely to recur in the foreseeable future and which relate to the
operation of the Company, excluding the costs of acquisition or
disposal of investments, finance charges, gains or losses arising
on investments and Ordinary Shares.
Ongoing charges is a measure, expressed as a percentage of NAV,
based on actual costs incurred in the year as being the best
estimate of future costs excluding any non-recurring fees divided
by the average NAV of the Company during the year, in accordance
with the Association of Investment Companies (the "AIC")
methodology.
The ongoing charges ratio for the year ended 31 March 2020 was
1.29% (31 March 2019: 1.14%). The AIC's methodology for calculating
an ongoing charges figure is based on annualised ongoing charges,
as calculated overleaf, of EUR1,780,238 (31 March 2019:
EUR1,995,152) divided by average NAV in the period of
EUR137,494,959 (31 March 2019: EUR175,170,416).
Reason for use
Ongoing Charges details the annual percentage reduction in
shareholder returns as a result of recurring operational expenses
assuming markets remain static and the portfolio is not traded.
Recalculation of total ongoing charges for the year
The ongoing charges are based on actual costs incurred in the
year excluding any non-recurring fees in accordance with the AIC
methodology. Expense items have been excluded in the calculation of
the ongoing charges figure when they are not deemed to meet the
following AIC definition:
"Ongoing charges are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective fund, excluding the costs of
acquisition/disposal of investments, financing charges and
gains/losses arising on investments. Ongoing charges are based on
costs incurred in the year as being the best estimate of future
costs."
Please refer below for ongoing charges reconciliation for the
years ended 31 March 2020 and 31 March 2019:
31 March 2020 31 March 2019
EUR EUR
Total operating expenses for the year: (1,844,288) (1,904,532)
----------------------------------------- -------------- --------------
Expenses included in the calculation of
ongoing charges figures, in accordance
with AIC's methodology:
Professional fees (400,587) (331,539)
Administration fees (232,072) (242,561)
Management fees (977,666) (1,241,358)
Directors' fees (169,913) (179,694)
----------------------------------------- -------------- --------------
Total ongoing charges for the year (1,780,238) (1,995,152)
----------------------------------------- -------------- --------------
Company Information
Director s
Ian Fitzgerald (Non-Executive Chairman)
Anne Ewing (Non-Executive Senior Independent Director)
Trudi Clark (Non-Executive Director)
Jonathan Bridel (Non-Executive Director) (Resigned on 30 June
2019)
Registered Office
BNP Paribas House, St Julian's Avenue, St Peter Port, GY1 1WA,
Guernsey, Channel Islands
Investment Manager
Alcentra Limited
160 Queen Victoria Street, London, EC4V 4LA, United Kingdom
Solicitors to the Company (as to English law)
Linklaters LLP
One Silk Street, London, EC2Y 8HQ, United Kingdom
Advocates to the Company (as to Guernsey law)
Carey Olsen
P.O. Box 98, Carey House, Les Banques, St. Peter Port, GY1 4BZ,
Guernsey, Channel Islands
Corporate Broker
J.P. Morgan Securities Plc
25 Bank Street, London, E14 5JP, United Kingdom
Independent Auditor
KPMG Channel Islands Limited
Glategny Court, Glategny Esplanade, St Peter Port, GY1 1WR,
Guernsey, Channel Islands
Regist rar
Computershare Investor Services (Guernsey) Limited
1(st) Floor, Tudor House, Le Bordage, St Peter Port, GY1 1DB,
Guernsey, Channel Islands
Principal Bankers
BNP Paribas Securities Services S.C.A.
BNP Paribas House, St Julian's Avenue, St Peter Port, GY1 1WA,
Guernsey, Channel Islands
Designated Manager, Administrator, Custodian and Company
Secretary
BNP Paribas Securities Services S.C.A., Guernsey Branch
BNP Paribas House, St Julian's Avenue, St Peter Port, GY1 1WA,
Guernsey, Channel Islands
Enquiries:
BNP Paribas Securities Services S.C.A., Guernsey Branch
Company Secretary
Jasper Cross
01481 750859
JP Morgan Cazenove
William Simmonds
Oliver Kenyon
0207 742 4000
Copies of the Company's Annual Report and Audited Financial
Statements will be available from the Company Secretary, BNP
Paribas Securities Services S.C.A., Guernsey Branch at BNP Paribas
House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA, or on
the Company's website WWW.AEFRIF.COM Neither the contents of the
Company's website, nor the contents of any website accessible from
hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FLFSRDAIFIII
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July 03, 2020 02:00 ET (06:00 GMT)
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